June 4, 2010 / 8:50 PM / 7 years ago

Wal-Mart's U.S. apparel a work in slow progress

* Says apparel is a small business compared to grocery

* Going back to basics, apparel still a "work in progress"

* Apparel likely to struggle until jobs improve-analyst

By Lisa Baertlein and Brad Dorfman

BENTONVILLE, Arkansas, June 4 (Reuters) - Wal-Mart Stores Inc (WMT.N) plans to stick with a struggling U.S. apparel business it calls a "work in progress," but improvement may be slow as the U.S. economy remains sluggish.

Over the last two years, apparel has declined as a percentage of overall U.S. sales, while grocery has risen.

"Apparel weakness will likely persist until jobs get better," Edward Jones analyst Matt Arnold told Reuters.

During the throes of the U.S. recession, Walmart benefited from higher-income shoppers trading down to discounters. Many of those shoppers have recovered some of their investment wealth and returned to more upscale shops, leaving Walmart more dependent on still-stressed, lower-income consumers who are more likely to live paycheck-to-paycheck.

"We are going back to basics in many ways. Basics as in business basics but also basics literally in terms of the product itself," Eduardo Castro-Wright, who oversees Walmart's U.S. business, said of the company's apparel at a press event following the company's annual meeting on Friday. [ID:nN04106506]

"Socks and underwear to jeans and T-shirts -- that's where we excel ... We're not a department store," said Castro-Wright, who added that Walmart can use its dominance in scale, sourcing and supply chain to bring down prices.

Castro-Wright also said the company would stay in apparel because it is a category that completes one-stop shopping trips for its customers.

After making other purchases on such a trip, Castro-Wright envisions, "also the customer picks up a nice Wrangler jean, which is as trendy as it gets. It is not maybe the most expensive one, but for most of our customer base would be absolutely adequate."

Walmart has been working its back-to-basics apparel strategy for a few years after an unsuccessful attempt to be more fashion-forward fell flat and actually alienated core customers, Arnold said.

"Apparel is one of the most discretionary portions of the store for Walmart, and their core customer is stretching the wardrobe a bit to free up funds for other areas of the budget," Arnold said.

Walmart sells more groceries in the United States than any other retailer. As a percentage of its overall U.S. sales, Walmart's grocery business grew from 47 percent in fiscal 2008 to 51 percent in fiscal 2010.

Apparel, on the other hand, fell from 12 percent of Walmart's overall sales to 10 percent in the same time period.

"Apparel, while it makes a lot of headlines, actually is not a significant part of our total business," Castro-Wright said. "It is important because it completes the trip and offers the one-stop shop opportunity for customers." (Reporting by Lisa Baertlein and Brad Dorfman; Editing by Gary Hill)

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