Risky Business? Wal-Mart Goes Luxe

Brent Felgner, Staff Staff, March 6, 2006

Secaucus, N.J. — The “L” word — “luxury,” heretofore unmentionable — is springing up all over Wal-Mart’s domestics department, particularly in sheets and other bedding coordinates, as well as in towels.

But as Wal-Mart uses home fashions to set its sights on an upmarket, higher spending Target-type customer — a risky maneuver by some accounts — it will ultimately require a much broader merchandising net and dead aim pulling together a better home presentation, something it still sorely lacks.

The effort clearly falls into the top “Wow” portion of a merchandising pyramid unveiled to vendors earlier this year by ceo Lee Scott — intended to drive comp store sales as Wal-Mart’s domestic store base continues to mature. It’s a pyramid that reflects Wal-Mart’s dominance over the opening price point business, acknowledges that it could be stronger in mid-priced goods, and admits that nothing but opportunity exists in luxury, where it presently has no position at all.

Home occupies a central role in Wal-Mart’s thinking. But as late as Friday, at least one analyst, J.P. Morgan,  noted customer traffic has been negative for three of the four months since Wal-Mart initiated its new upscale ad push.

“We are becoming increasingly concerned that WMT’s new advertising campaign/merchandise adjustments are failing to resonate with its customers,” wrote analyst Charles Grom in a research note.

With that backdrop, Wal-Mart has enunciated its new strategy as an effort to create a cross-shopping “pull” out of the grocery aisles, where it already enjoys a higher spending, more fashion-conscious shopper, and into its general merchandise and soft lines aisles.

Since late last fall, the retailer has slowly introduced higher thread counts and better goods into its stores, and taken a decidedly bolder tack in its online business. Originally direct sourced only, the program has now expanded to include more branded goods.

The effort has been greeted with both cheers and skepticism by analysts who follow the company. Goldman Sachs hailed the effort a part of a “roadmap” placing management on the “right track” to enhance greater cross-shopping. But J.P. Morgan sees the changes as creating potential “turbulence over the next 12-24 months” because of a “higher risk profile.”

“Three key pillars of this new strategy are the following: (1) improving cross-shopping, (2) developing trend-forward merchandise, and (3) updating Wal-Mart’s marketing message,” wrote J.P. Morgan’s Charles Grom in a research note. “In our view, it is still too early to assume a lift from these factors, and we expect WMT’s comps to generally track real consumer spending….”

Grom included a 25-year chart of Wal-Mart’s same store sales. The headline: “The Trend is Not Your Friend.”

Wal-Mart’s senior home merchants were attending off-site meetings last week and did not return calls or email inquiries.

The home department in this suburban New York City discount store is currently in the midst of a major reset in which a third to nearly half of the home SKUs will be replaced with new goods, according to dozens of “confidential” planogram charts pasted to the shelves and awaiting stockouts. But already many of those shelves are carrying the “”luxury” and better goods, among them:

• In sheets, 600-thread count cotton sateen ($64.84 queen), 400-count Luxury Sateen 100% cotton damask stripe ($55.77 queen), 400-count HomeTrends Select 100% “luxurious” cotton ($48.64 queen) and 350-count Luxury Extra Soft Blend 60/40 cotton/poly ($45.64 queen).

• A “Luxury Duvet Set,” including two shams ($58.84 full/queen)

• A 1000-thread count pillow cover ($6.96)

• A “Luxury Egyptian Cotton”  line of towels ($7.84 30x56 bath).

If any doubt remains after seeing these additions, Wal-Mart’s step up is also visible in a single SKU tissue box that has been added to its bath assortment. A rare or previously nonexistent sight in the mix, the box is from the Estate collection by Springs.

Most of the better goods are being branded Springmaid, interesting given that the Springs name is appearing on fewer and fewer Wal-Mart goods.

Online the tack is even bolder — still hammering at the luxury theme, although unbranded here — with an opening domestics page declaring, “Our Highest Quality Sheets Ever” and “Discover our high-threadcount sheets and feel true luxury.”

The presentation offers 440-count sheet sets from $59.88, 550-count sets from $69.88 (“’rolled back from $89.88”) and even 1,000-count sets from $99.88, which have not yet been seen in the stores.

But when one clicks on the 1,000-count option, two SKUs priced at $109.88 appear (queen, California King and king), offering ivory and white, with a “site-to-store” delivery option for Dallas-Fort Worth customers. There were no 1,000-count sheets on the Web site for $99.88 — an indication, perhaps, of the ongoing testing for merchandise and price resistance.

In store, the presentation is a work in progress, with little or no signage. For example, the top end 400- and 600-count sheet sets, Home Trends Select, were dropped on a center drive-aisle run adjacent to kiddies’ plush terry bath hoodies and animals and bulk washcloths.

A narrow-run Springmaid 400-count Luxury Sateen coordinated program, including duvet sets, was separated by 12-to-16 feet from the Springmaid Luxury Extra Soft Blend coordinated sets. Springmaid’s luxury towel line was visible only within the bath area and then only when pulled off a shelf to read the label

On the plus side, the lowering of top shelf merchandise stack heights on existing fixturing has sharply brightened the home department.

“We believe management has set its sights on the right strategies that should in concert drive improved store performance for customers and improved stock performance for shareholders,” wrote Goldman Sachs’ Adrianne Shapira. “The next critical step is execution.”

Shapira noted among other things that the company will follow much of the same roadmap as Wal-Mart Mexico with the “new guy” approach brought by former Wal-Mex ceo Eduardo Castro-Wright in his role now as U.S. coo, “which enforces our confidence that with a sound plan and proven leader the stage is set for improvement in the U.S.”

While representing its first push into “luxury” goods in home, this is not Wal-Mart’s first trip upmarket. It abandoned the Pillowtex Sahara Supreme towel program in 1999 for lack of customer interest and, some have suggested, its own commitment to the merchandising tack.

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