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Wal-Mart Sets Sights on Dominating Apparel Industry

Wal-Mart has never been a leader in the apparel industry, with clothing accounting for a modest 7 percent of its overall sales. But one part of their aggressive plans for expansion, just recently announced, is a new commitment to fashion, with the intention to eventually dominate that sector as they have toys, home goods and electronics.

To this end, Wal-Mart has been crafting a comprehensive strategy for apparel merchandise as part of its vision for overall growth over the next five years. Planning to add an additional $500 million in apparel sales over the next year, the retail leviathan will be pushing brands like Ben Hogan, Russell, And-1 and Avia. According to chief merchandising officer Duncan McNaughton, Wal-Mart intends to offer an assorted basket of products that will roughly include 50 percent basic apparel, 40 percent fashion and 10 percent new, exclusively carried brands.

And it looks like Wal-Mart intends to take advantage of the success other retailers have had with casual chic clothing, combining everyday wear with performance gear. Last week, Andy Barron, speaking to  roomful of analysts, said that Wal-Mart intends on focusing much of its efforts on women’s activewear.

Speaking to The City Wire, Carol Spieckerman, CEO of new Market Builders, said that Wal-Mart might be uniquely positioned to extend its influence into apparel. “Wal-Mart has a real opportunity to capitalize on the popularity of women’s activewear and democratize it for the masses in an extreme value proposition,” she said.

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According to Spieckerman, Wal-Mart has two natural, and powerful advantages. First, it has an unusually efficient combination of physical stores and omnichannel reach at its disposal, allowing it to nimbly deliver a wide range of products to a diverse consumer constituency while suppressing costs. “If they don’t add another product there is still room for growth online at higher margins,” she said.

Also, she hypothesized that Wal-Mart could radically improve its sales if it targeted millennial shoppers who are increasingly enthralled with wearable technology, or fashion that has a prominent technical aspect. “Uniqlo is a great study in technical fashion, they are expanding here in the U.S. peppering both coasts with stores with plans to serve the interior states largely through online sales. Think about buying the latest tech gadget that comes inside a coat, it’s a win for both categories, higher margin apparel offsetting ongoing deflation in electronics. everyday consumers.We know millennials shop anywhere they can find what they want, when they want it, and Wal-Mart has the scale to meet those demands in emerging technology,” she said.

The move into apparel sales is part and parcel of Walmart’s ambitious growth projections for the next several years. Their eye-popping goal for 2016: $500 billion in sales, or about one-half of what JC Penney borrowed this year to shore up its capital reserves.

The capital spending for Wal-Mart in 2015 will be aggressive, with plans to drop $11.8 billion to $12.8 billion. In addition to apparel, the company will emphasize improved technology, e-commerce and omnichannel capabilities and small-store renovations.

Wal-Mart could also create increased market leverage with its proven licensing strategies. The retailer has enjoyed considerable success with brands like Duck Dynasty and plans to push exclusive labels, sometimes backed by celebrity endorsement, without the trouble of long-term contractual commitments. According to Barron, Wal-Mart intends to offer suppliers three-year contracts rather than the standard one-year variety. “Suppliers know they can get $300 million annually for three years when they give us better costs and access to better exclusive product,” he said.

For the current fiscal year, Wal-Mart anticipates to draw in roughly $480 million in sales, in line with Thomson Reuter’s forecasts. The company also plans to grow by a healthy 3 percent to 5 percent, adding as much as $24 billion in net sales.

Wal-Mart also plans to add as many as 265 new stores, which amounts to about 21 million square feet. For the sake of context, consider that New York City’s Central Park is 36.5 million square feet.

But the number generating all the buzz is the robust prediction of half a trillion dollars by 2016, largely fueled by innovations in e-commerce strategies. Wal-Mart expects to close out 2014 having captured $10 billion in internet sales.