Wal-Mart's fashion faux pas

By The Wall Street Journal

Wal-Mart's struggles in fashion apparel appear to be worsening.

Stacks of unsold clothing are clogging store aisles and pressuring profits. Now, Wal-Mart Stores' (WMT, news, msgs) first designer line, by Mark Eisen, has been pulled from several hundred of the more than 3,000 U.S. stores that carried it, according to a person close to the situation. A Wal-Mart spokeswoman confirmed the line had been pulled from some stores but didn't know how many.

Wal-Mart's chief financial officer says clearing out stocks of unsold clothing is going to be a chore and could pressure margins all summer. "We're a little heavy in apparel," Thomas M. Schoewe said last week. "It's all about getting the stores cleaned up right now."

The flush inventories mark a significant miscue from a year ago, when Karen Stuckey, a Wal-Mart apparel-merchandising executive, said of the addition of Eisen and the retailer's newfound fashion focus, "We're going to rock in apparel."

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The setback suggests Wal-Mart's apparel problems go deeper than a misfire with ultratrendy attire that led to a sales stumble late last year. At that time, an in-house-designed line of skinny-legged pants and nightclub wear, called Metro7, turned off customers, who went shopping elsewhere.

Wal-Mart's inventories jumped 10.3% in its fiscal first quarter, which ended April 30, to $35.2 billion from a year earlier, driven by unsold apparel, home decor and outdoor products. About $2 billion of the increase represents unsold spring clothing and home goods that are expected to depress profit through the summer, analysts estimate. The Wal-Mart spokeswoman declined to comment on the estimate.

The latest woes involve Wal-Mart's efforts to bring brand-name designers into its orbit. Wal-Mart is seeking to better compete with Target (TGT, news, msgs), J.C. Penney (JCP, news, msgs) and Kohl's (KSS, news, msgs), which have a reputation for higher-end clothing than what Wal-Mart carries.

Positive reviews from New York

A year ago, Wal-Mart signed Eisen, a former AnnTaylor Stores (ANN, news, msgs) design executive, to put some sparkle into its George line of everyday women's apparel, which although successful outside the U.S. has been weaker here. Eisen, known for his line's fit and styling, launched knitwear label Karoo in 2005. The Karoo line sells at high-end retailers such as Bergdorf Goodman, Neiman Marcus and Nordstrom (JWN, news, msgs).

Eisen developed a collection of women's sportswear within the broader George line called George M.E., for the designer's initials. It featured $22 cardigans and $70 suede jackets, among other items. Wal-Mart showed the collection at New York's fashion week last year, gathering positive reviews. But problems surfaced almost immediately. The fall line was supposed to appear in mid-August, but Wal-Mart put the apparel in stores a month early -- too soon for many shoppers -- to fill gaps in other lines.

Patricia Edwards, a portfolio manager at financial-services firm Wentworth, Hauser & Violich, says little marketing of Eisen or his line followed the fashion-week launch. Wal-Mart customers who didn't shop at Neiman Marcus were unlikely to have heard of him, she said. "Wal-Mart is so good at providing things based on price that I'm not certain they've yet grasped how to promote items that aren't solely based on price."

The Wal-Mart spokeswoman declined to make executives available to comment. Eisen didn't return calls seeking comment. A person close to the designer said sales had recently improved, now that the line appears in fewer stores.

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