The Empire Strikes Back

Wal-Mart's empire army rolls on, shrugging off every zoning challenge, community attack, court ruling, labor union assault and Jedi insurrection. And soon, it will launch its much-anticipated entrance into the fashion world.

Wal-Mart selling fashion? Isn't that a little bit like saying: Democrats winning elections? Perhaps. But it shows that the retailer is reacting to some so-so sales reports and a new word in the Bentonville vocabulary: “competition.”

Blaming an early Easter and rainy weather, Wal-Mart admitted in April that quarterly earnings were at the low end of its estimates and that same-store sales might be up 2 percent at best. For years, Wal-Mart has counted on its enormous capital budget to outspend competitors like Target and Sears 15-1 in new-store expansion. And while such saturation, the company insists, is still good business, its decades-long “if we built it, they will come” strategy is beginning to raise questions. With Wal-Mart building as many new stores as an area can support, sales in older stores are sure to slip.

Now, in a change of direction, Wal-Mart is poised to go head-to-head with its competition on higher-priced products. Its newest supercenter in Jane, Mo., features a whole aisle of new merchandise: circus-colored summer plastic plates and cocktail glasses that look like Target's; soft and silky 400-thread cotton sheets; a bedroom console with a honey-maple wood veneer finish (“not paper,” trumpets a Wal-Mart representative).

In April, the retailer showed off new offerings at a temporary showroom near its headquarters, from polo shirts to plasma television sets. Why? Wal-Mart buyers acknowledged, uncharacteristically, that the retailer was reacting to the product offerings of rivals like Target, Gap and Bed, Bath & Beyond.

To improve its clothing selection, Wal-Mart's New York design team is collaborating with the designers at George, the British clothing chain Wal-Mart gained when it purchased the Asda European supermarket chain. Wal-Mart executives said they were ramping up the George brand to take some business away from the similarly priced Isaac Mizrahi line at Target.

But while Wal-Mart is trying to regain those sharp merchandising instincts Sam Walton built the empire with, it certainly can't alienate those bargain hunters that have also been a huge part of the formula. While upgrading a lot of its merchandise, Wal-Mart is trying to maintain the loyalty of its core customer &endash; the woman who is struggling to provide for herself and her family, according to company executives.

“We will never abandon her,” said Claire Watts, merchandising evp, “but we do have 100 million-plus people in our doors weekly and we are trying to reach out. For example, we want to reach the women who come in to buy food, but don't go near our fashion areas.” Or the home furnishings. “We found that 54 percent of the people who shopped in Wal-Mart didn't even visit our home furnishings department,” said Shawnda Schnurbusch, vp for home furnishings. “They headed off to places like Bed, Bath & Beyond.”

For now, Watts said, the strategy is not to lure new customers to the store. “We're looking to take advantage of who's coming in now,” she said. “That's our first initiative. Then we can figure out how to get the other half of the country.”

Uh-oh. The empire is mobilizing again.