August 7, 2005

Is Wal-Mart Becoming More Fashion Conscious?

According to a recent article in the Washington Post [registration required], Wal-Mart wants to upgrade its fashion image, especially in its clothing lines, but through-out its stores.

Wal-Mart's shoppers ... 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.

For decades, the retailer has relied on its suppliers to tell the chain what's fashionable. The problem was that the company had no way of knowing if the vendors were wrong. "A lot of suppliers got used to selling us large quantities of last year's look," said Watts, the vice president of product development.

It seems odd that Wal-Mart would trust its suppliers on style but negotiate hard on price. Why don't they just ask their suppliers what a good price would be, too? That they don't suggests there is something missing from the article.

The implication of this practice is that both Wal-Mart and its suppliers have been playing a non-repeated game in which Wal-Mart negotiates very low prices but also gets dumped on with older styles. This game might work so long as both players expect not to deal with each other again in the future. But playing the game repeatedly with different players has affected Wal-Mart's strategies.

Given this change in goals for Wal-Mart [the desire for more up-to-date fashions], if the suppliers want contracts with Wal-Mart in the future, they cannot just dump unfashionable merchandise with Wal-Mart for low prices when Wal-Mart takes their word for what is in style.

If Wal-Mart wants more up-to-date styles, it has [at least] two options. One is to develop longer-term working relationships (aka repeated-play games) with its suppliers . The other is to monitor fashions more closely itself; setting up a fashion centre on Fifth Avenue in New York City indicates that Wal-Mart has chosen the second of the two options.

(also posted at The Eclectic Econoclast)

Posted by TheEclecticEconoclast on August, 7 2005 at 11:23 AM