Big Box Giant Courts the 1% to Stay Solvent
At the end of the third quarter 2018, price conscious Walmart began to phase in over 125 luxury brands. You heard right, luxury brands sold at Walmart. While other industry giants such as Toys R Us and Sears folded or shuttered storefronts, Walmart has chosen a very unlikely path to find its way out of the economic quagmire. The chain, known for its low-priced merchandise and lower income clientele, has partnered with Lord and Taylor, a longtime luxury retailer. While each side of this relationship must be regarding the other with suspicion if not hostility, their individual survival might well depend on the reputation held by one another. Walmart is hoping to attract the well-heeled, while Lord and Taylor is seeking new customers for some of its more affordable upscale labels. After all, there is said to be strength in numbers, why not mix up the demographics as well?
Whether this shakey union will succeed long-term is unknown at this point. Upon closer examination, however, it is just crazy enough to work. What is the magic component? As always, compromise. Luxury retailers are losing foot traffic and their demographic, consumers over 55, may not be online shoppers. Also, as their target audience ages, there is less need for evening wear, gold, silver, and precious stone jewelry, and seasonal wardrobing. For retirees who become winter snowbirds, there is little need for warm outerwear. L&T wants to lure more middle-class shoppers to its website and brick and mortars. While their purchases per item may not be high, they still require year-round clothing and that prompts continuous online purchases, brings shoppers into stores, and makes cash registers ring.
Both Walmart and Lord & Taylor are having one hell of a year. In January, Walmart announced massive store closings and layoffs across the country, including at its warehouse, Sam’s Club. In October 2018, it was Lord & Taylor’s turn to eat humble pie. Up to 10 of its store nationwide will close by end of year. The kicker here is that these store closures include L & T’s fabled flagship store on Fifth Avenue in New York City. A Manhattan landmark for over 100 years, many insiders knew the chain was in trouble, but almost no one expected this. For both retailers who cater to consumers at opposite ends of the economic spectrum store closures generally precede filing for Chapter 11 protection.
To avoid bankruptcy and to turn this perilous situation around, decisive action had to be taken. But no one expected the white horse to be a retailer known for its starchy, nose-in-the-air-attitude, Lord & Taylor’s, nor the retailer founded in 1962 by a country hayseed. As for Walmart, Sam Walton might just approve their joint approach. While not a single Walmart standard has been sacrificed, nor a popular product discontinued, the inclusion of ‘something better’ will likely attract a new audience. Depending on how these new buyers rate their shopping experience will determine if they will become repeat customers.
The first stage has been to slowly introduce men’s women’s and kids’ clothing as well as footwear, accessories, and jewelry on Walmart’s website only- just in time for Christmas. Also, as if their quality alone was not enough of a differentiator, all 125 brands will appear under a separate category banner labelled, “Premium Brands” from Lord & Taylor”. Should these items sell briskly, the next step is to introduce some of the top sellers in select Walmart stores across the U.S. Each product description bears the legend, “sold and shipped by Lord & Taylor’s”. As you might expect, Lord and Taylor will receive a portion of each sale made on Walmart’s turf- online and down the road, in-store.
How Will This Alliance Work?
In case you were wondering, no Walmart merchandise will be sold either on the tony retailer’s website nor in any of its stores. While perhaps a small percentage will turn to this high-end retailers’ eponymous website or brick and mortars for special occasion clothing and better quality footwear, that is not the goal. The hope is that many existing Walmart stalwarts will make purchases from L & T’s exclusive category online, so that this category can be further expanded, and that both retailers will reap the rewards.
It is a simple enough theory that dates back centuries. The working classes are said to wonder how the other half (in this case the 1%) lives. By bringing carefully chosen brands such as L & T’s house brand, Vince Camuto, Lucky, Karl Lagerfeld, Democracy, Ivanka Trump, Calvin Klein, Miss Selfridge, Timberland, Brooks Brothers, and others not generally associated with Walmart, the brand is elevated without displacing its existing demographic. While it is not likely that stretch limos and Maserati will share Walmart’s parking lot with late model Hyundais and Ford Escapes, it is very likely that more affluent shoppers will visit the Walmart website and buy from other departments which include groceries, housewares, pet supplies, automotive, cosmetics and nutraceuticals, and even home decor.
Remember, the U.S. economy is not yet back to the level achieved in 2007. How affluence is defined differs now. Even for those who did not have to strictly budget their spending habits, nationwide and with an uncertain future, every household practices some degree of belt-tightening. For example, some households with incomes over $150K annually, now lease their luxury cars rather than buy them as they had previously. For many of us, online shopping has become a daily obsession, and hunting for the best prices is a new indoor sport.
As stated above, it is too soon to tell if this new alliance will succeed. For Black Friday, it was noted, that both Walmart and the Premium brands offered promotional pricing. Premium brands continued for the duration of the week that followed, hoping to influence shoppers’ buying decisions. If this scheme actually works, it could lead to some interesting pairings among retailers. If not, it was a chance, a financial risk well worth taking.