Walmart has a lot going for it. The retail giant remains one of the biggest destinations for American shoppers, its e-commerce business is growing quickly, and it continues to attract more higher-income customers.
But there’s one area where Walmart wants to make a bigger impression: fashion.
The retailer is betting that a new private-label brand called Scenario can help it capture more of the clothing dollars its customers currently spend elsewhere.
That strategy may sound familiar to Costco shoppers.
Costco has spent decades building Kirkland Signature into one of the most recognizable private-label brands in retail.
Walmart is taking a different approach with Scenario, but the underlying idea is similar: Give shoppers products they can’t get from other retailers while combining quality, style and value.
Walmart wants to make fashion a bigger business
Scenario is Walmart’s latest attempt to change the way shoppers think about its clothing business.
The collection features a modern-bohemian aesthetic, with apparel, shoes, jewelry, handbags and accessories. Much of the collection is priced below $25.
The goal, however, isn’t simply to give shoppers another cheap place to buy a T-shirt. Rather, Walmart is trying to create a recognizable fashion brand.
Walmart’s fashion business has historically been associated with basics and convenience rather than with trend-setting styles. Scenario represents a true shift. And the opportunity is straightforward.
If Walmart can convince shoppers that its clothes are stylish as well as inexpensive, it has another reason for them to buy something beyond groceries and household necessities. And fashion could help diversify a business that remains heavily dependent on lower-margin grocery sales.
Walmart is borrowing from Costco’s playbook
The success of Costco’s Kirkland brand has caused a lot of retailers to rethink their strategies.
Kirkland isn’t simply a cheaper alternative to national brands. Costco has deliberately built the label around quality and value, and the brand now covers hundreds of products across dozens of categories.
Costco says Kirkland products are designed to provide high quality at lower prices than comparable national brands. The company has also described Kirkland as one of the main reasons customers become Costco members.
Scenario has a different mission, but the consumer benefit is similar.
A shopper doesn’t have to pay a premium for a recognizable fashion label to get a product with a distinctive look. Walmart gets to create the product assortment and control the brand, while shoppers get another option at a relatively low price.
That’s particularly relevant at a time when consumers are watching their budgets.
The timing couldn’t be better
Walmart’s new fashion brand is being introduced at an optimal time.
Walmart’s stock plunged more than 9% following its Aug. 20 earnings report. The company actually beat Wall Street’s expectations for revenue and adjusted earnings, but investors focused on weaker underlying trends.
Walmart U.S. comparable sales rose just 2.6% excluding fuel, the company reported, which disappointed investors, while the average customer ticket increased just 1.1%.
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The company also warned that higher fuel costs and aggressive price cuts could put pressure on profits.
That makes finding new ways to get shoppers to spend more particularly important.
Walmart has a big battle to fight
Of course, Walmart’s challenge is going to be convincing shoppers that Scenario isn’t simply inexpensive.
It needs them to believe the clothes are worth buying because they look good, fit into their wardrobes, and offer something beyond what they can find in Walmart’s traditional apparel assortment.
If Walmart succeeds, Scenario could become another reason to visit the retailer.
“We can see in our data that Walmart has made good progress in apparel over the past few years and it has moved from a place where folks went to get basics to one that serves a wider variety of needs,” Neil Saunders, managing director and retail analyst at GlobalData, told Retail Wire.
As such, this new strategy stands a fighting chance.
After all, Costco has already proven that a retailer doesn’t need to sell only national brands to create customer loyalty. Walmart is betting that the same basic idea can work in fashion.
And in an economy where shoppers are increasingly looking for value, that’s a proposition that may be hard to ignore.
Maurie Backman owns shares of Walmart and Costco.
More on Walmart & its stock:
- History of Walmart: Company timeline & facts
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- Walmart’s stock split history (& prospects) explained
- Walmart’s stock buybacks: How its repurchase program affects shareholder returns
- Where is Walmart’s headquarters? All about its Bentonville, Arkansas base
