Wal-Mart Aiming to Become Hip

NEW YORK -- Head south on Fifth Avenue, past the look-but-don't-touch boutiques of Bruno Magli, Salvatore Ferragamo and Henri Bendel, stop at 31st Street and look for a building on the right, between the fast-food restaurant and the souvenir shop.

There, on the sixth floor, sits the only Wal-Mart in Manhattan -- not a store, but offices, a laboratory where veterans from Nautica, OshKosh B'Gosh and the West Elm furniture catalogue work, largely in secret, to help the nation's largest retailer earn one designation that has long eluded it: hip.

They forecast trends in clothing, home decor and furniture in advance of a season, then transmit the details back to the colleagues in northwest Arkansas who ultimately determine what reaches the shelves of the company's 3,400 stores.

With trends in fashion trickling down into everything from toasters to infant clothing, the chain is suddenly worried about missed opportunities. Since its founding in 1962, Sam Walton's brainchild has built its business on the traditional-minded lower-income shopper. This is a customer, judging by Wal-Mart's merchandise, who wants the basics -- a sturdy nightgown, a reliable bathing suit, a six-pack of children's underwear. And Wal-Mart sells the basics cheap: the $24 DVD player, the $12.90 twill jacket -- at times regardless of how they fit in with the rest of the merchandise in the store, or even whether they are in style.

But that singular focus on bestsellers has left the chain without the kind of storewide design aesthetic that has turned rival Target into Tar-zhay, crammed, at every turn of the shopping cart, with bold, contemporary patterns and designs that evoke a lifestyle. And it has left Wal-Mart vulnerable at a time when customers at all levels, even Wal-Mart's basic customers, want fashion.

"We are an item house," concedes Wal-Mart's vice president of product development, Claire Watts. "But customer expectations require more than great items."

What they require, designers say, are risky forays into fashion, the kind that could alienate Wal-Mart's core customer.

To inject designer cachet into its merchandise, Target recruited architect Michael Graves and designers Todd Oldham and Isaac Mizrahi to create clothes and home furnishings exclusive to the chain; H&M has snagged designer Karl Lagerfeld to do the same.

The movement that these retailers have triggered goes by many names -- the democratization of fashion, the dawn of cheap chic -- but the motivation is simple: A globalized generation of consumers, reared on the endlessly self-improving and consuming message of "Queer Eye" and "What Not to Wear," is eager to buy into the next trend.

So why is Wal-Mart just discovering this? Until now, the discounter's growth has relied on a steady schedule of new store openings -- about one a day this year. But as Wal-Mart runs out of new places to plop down its mammoth stores, investors are focusing on the chain's lackluster same-store sales, a closely watched figure measuring purchases at stores open for at least a year.

On that score, Wal-Mart consistently trails Target, according to Deutsche Bank. Wal-Mart executives blame the sluggish same-store sales on their decision to build new stores close to older ones, which temporarily dampens sales at the older store but ultimately, they say, creates more Wal-Mart shoppers. But veteran Wal-Mart watcher Bill Dreher of Deutsche Bank isn't buying it.

"Cannibalization is a factor, but not the only or the dominant one in Target's much stronger performance," he said.

One culprit, analysts speculate, is Wal-Mart's shoppers, who consistently seek clothing and home decor outside the chain -- namely at J.C. Penney, Kohl's and Target in that order, studies show. One hundred million consumers shop at Wal-Mart every week, but only 34 percent buy apparel there, according to a study by STS Market Research.

"Kind of old-fashioned," is how Janice Fitzgerald described the apparel and home decor at a Wal-Mart. She skips those departments and heads for household staples such as razors and toilet paper. When buying clothes for herself, she shops at Kohl's and Target; her three children gravitate toward Aeropostale, Abercrombie & Fitch, and H&M.