Wal-Mart's Dressed Down

Wal-Mart (NYSE: WMT  ) may be mighty in many ways, but recent word about how its new, snazzier apparel lines are faring shows that the discount giant is by no means invincible.

Not only is Wal-Mart paring back its Metro 7 line, it's also rethinking how it's distributing its line called George -- designed by Mark Eisen (formerly of AnnTaylor (NYSE: ANN  ) -- pulling it from several hundred stores. Granted, a company spokeswoman told the Associated Press that the reduction isn't as significant as the change in strategy for Metro 7, and that such adjustments aren't that big deal when you're rolling out a new line like George.

That said, the change in strategy for Metro 7 has been pretty serious, with Wal-Mart admitting it had tried to launch fashionable apparel too quickly, in too many stores. Metro 7 is now in fewer than 1,000 stores, as compared with 1,500 stores previously. And a lot of the buzz surrounding Wal-Mart's most recent quarter has had to do with sluggish customer response to the apparel offered, resulting in a buildup in inventory.

These events have ramifications that should have been clear from the get-go. Everybody who gets panic-stricken over their stocks when Wal-Mart pushes into some new product line is forgetting that just because Wal-Mart is a large and historically successful company doesn't mean it can do anything and everything.  

Wal-Mart's decision to try to sell more fashionable clothing to its customers was obviously a reaction, at least in part, to Target's (NYSE: TGT  ) incredible good fortune in that department. (When I covered the launch of Metro 7 in late 2005, I found the prospect of Wal-Mart being a success in fashion a bit farfetched, not to mention its ad campaign in Vogue.) Of course, to say Target has had "good fortune" isn't exactly accurate. Target has carefully implemented its strategy, and it's become adept at offering cheap chic that also appeals to more upscale customers. I'd say news like this might say more about Target's long-term strength than Wal-Mart's weakness. Target's good at this; I read a Wall Street Journal article recently that pointed out that Target's been honing its cheap chic strategy for about 20 years. Wal-Mart's still just trying to play catch-up, and it doesn't seem like the majority of its customers are ready -- or maybe even interested.

This also makes me think of another development that caused panic -- when Wal-Mart started pushing into organic merchandise, freaking out investors who held shares in companies like Whole Foods Market (Nasdaq: WFMI  ) . Just because Wal-Mart sees a segment that other companies excel in and decides to dive in doesn't necessarily mean it can emulate that success. Certain product lines are going to seem anything but authentic to some types of customers, utterly impractical to others.  

Wal-Mart's dying to drum up more growth and lure more customers from all walks of life, but when it comes to appealing beyond its core, it's got some real challenges. (Another thing -- for at least some of the types of customers who gravitate toward cheap chic or organic goods, the Wal-Mart way of doing business hasn't been held in high esteem.) Taking focus away from what Wal-Mart does best -- and who its best customers are -- may turn out to be a risky strategy for it. But what choice does it have?   

Wal-Mart is a Motley Fool Inside Value selection and Whole Foods Market is a Stock Advisor recommendation. Talk stocks with other investors and our analysts when you give our newsletters a try.

Alyce Lomax owns shares of Whole Foods Market. The Fool has a disclosure policy, and it's very fashionable.


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