Head south on Fifth Avenue, past the look-but-don't-touch boutiques of Bruno Magli, Salvatore Ferragamo and Henri Bendel, stop at 31st Street and look for a building on the right, between the fast-food restaurant and the souvenir shop.

There, on the sixth floor, sits the only Wal-Mart in Manhattan -- not a store, but offices, a laboratory even, where veterans from Nautica, OshKosh B'Gosh and the West Elm furniture catalogue work, largely in secret, to help the nation's largest retailer earn one designation that has long eluded it:


These retail warriors walk the streets of SoHo, notebooks in hand, sneak into boutiques in London and snap photos of teens in Tokyo to divine what's hot. They forecast trends in clothing, home decor and furniture in advance of a season, then transmit the details back to the colleagues in northwest Arkansas who ultimately determine what reaches the shelves of the company's 3,400 stores.

Given its reputation as a juggernaut, it's a curious sensation to consider Wal-Mart's vulnerability. But that is what the two-year-old New York Trend Office is there to address.

With trends in fashion trickling down into everything from toasters to infant clothing, the chain is suddenly worried about missed opportunities. Since its founding in 1962, Sam Walton's brainchild has built its business on the traditional-minded lower-income shopper. This is a customer, judging by Wal-Mart's merchandise, who wants the basics -- a sturdy nightgown, a reliable bathing suit, a six-pack of children's underwear. (Wal-Mart sells one of every two pairs in the United States.)

The discount giant has stuck by that consumer, earning billions in the process. But now it is rethinking things -- placing ads in that fashion bible Vogue; having its TV commercials portray a lifestyle, not just a smiley face rolling back prices; even considering hiring a big-name designer. For it has not escaped the attention of Bentonville, Ark., that the rest of the retail world has discovered a different, more lucrative shopper -- one who craves style for style's sake.

As Wal-Mart upgrades its merchandise to compete with edgier rivals, the staff in the New York office is serving as a hidden but powerful scouting party, watching carefully to ensure that a chain known for missing trends has the right product at the right moment.

But for all its globetrotting exploits to pay off, the Trend Office will need to change not just what Wal-Mart carries, but the way the retailer thinks about merchandise, according to those inside and outside the company.

For 43 years, Wal-Mart has been obsessed with individual bargains -- the $24 DVD player, the $12.90 twill jacket -- at times regardless of how they fit in with the rest of the merchandise in the store, or even whether they are in style.

But that singular focus on bestsellers has left the chain without the kind of storewide design aesthetic that has turned rival Target into Tar-zhay, crammed, at every turn of the shopping cart, with bold, contemporary patterns and designs that evoke a lifestyle. And it has left Wal-Mart vulnerable at a time when customers at all levels, even Wal-Mart's basic customers, want fashion.

"We are an item house," concedes Wal-Mart's vice president of product development, Claire Watts, a veteran of Limited Stores, Lands' End and May Department Stores. "But customer expectations require more than great items."

What they require, designers say, are risky forays into fashion, the kind that could alienate Wal-Mart's core customer.

To inject designer cachet into its merchandise, Target recruited architect Michael Graves and designers Todd Oldham and Isaac Mizrahi to create clothes and home furnishings exclusive to the chain; hip Swedish retailer H&M has snagged designer Karl Lagerfeld to do the same.

The movement that these retailers have triggered goes by many names -- the democratization of fashion, the dawn of cheap chic -- but the motivation is simple: A globalized generation of consumers, reared on the endlessly self-improving and consuming message of "Queer Eye" and "What Not to Wear," is eager to buy into the next trend, even if that skirt or sofa or sneaker lasts them only one season.

"This is the trend that keeps on giving," said Marshal Cohen, chief analyst at market research NPD Group, who spends hundreds of hours a year interviewing consumers about their shopping habits.

NPD has found that a typical appliance consumer would rather buy five or six hip-looking blenders for $19.99 over the next 10 years than a single sturdy one for $89. "Sure, they know they are getting one that may break down in a few years," Cohen said, "but they will be able to keep getting the latest."

So why is Wal-Mart just discovering this? Until now, the discounter's growth has relied on a steady schedule of new store openings -- about one a day this year. But as Wal-Mart runs out of new places to plop down its mammoth stores, investors are focusing on the chain's lackluster same-store sales, a closely watched figure measuring purchases at stores open for at least a year.

On that score, Wal-Mart consistently trails Target according to Deutsche Bank Securities Inc. Wal-Mart executives blame the sluggish same-store sales on their decision to build new stores close to older ones, which temporarily dampens sales at the older store but ultimately, they say, creates more Wal-Mart shoppers. But veteran Wal-Mart watcher Bill Dreher of Deutsche Bank isn't buying it.

"Cannibalization is a factor, but not the only or the dominant one in Target's much stronger performance," he said.

One culprit, analysts speculate, is Wal-Mart's shoppers, who 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.

"Kind of old-fashioned," is how Janice Fitzgerald described the apparel and home decor at a Wal-Mart in Alexandria. She skips those departments and heads straight for household staples such as razors, toilet paper and contact lens supplies. When buying clothes for herself, she shops at Kohl's and Target; her three children gravitate toward Aeropostale, Abercrombie & Fitch and H&M.

Hence the Trend Office in New York, which is trying to ensure that Wal-Mart stocks the must-haves for the Fitzgeralds of the world. The office is small -- 10 people, most of them freelance consultants. All are veteran trend spotters: Fran Yoshioka, a former trend and design director at Sears; Claudia Rahn, a former design director at West Elm, the contemporary home furnishing company; Bryan Norris, formerly a design director for men's clothing at Nautica; and Lynn Neulander, who has designed home lines for Jonathan Adler and Tracy Porter and apparel for Levi Strauss and Van Heusen.

Inside the office, the walls are covered with product samples -- a sheer tunic studded with beads from Paris, a silky camisole from London -- that will serve as inspiration for the chain's in-house brands. Wal-Mart's store brands are designed with a specific consumer in mind: Puritan (for the frugal, traditional man), White Stag (for the frugal, traditional woman) and George (for the preppy working man or woman).

Designers at work on 2006 lines have shopped the world's fashion capitals for the right mix of colors, fabrics and cuts. For spring and summer, "color has gotten neutralized and softer," said Yoshioka, the creative director for women's clothing, sitting in front of a wall of pastel fabric samples. "Everyone wants to do bright colors, but neutrals are the right thing to do."

She then turns to bigger themes for fall 2006 clothing. "We are going back to the turn of the century -- looking at Victorian, Edwardian, Gothic," she said. "That's where high-level designers' heads are." Wal-Mart, she continues, "will not do a Victorian look. It would not look right. Or Edwardian. Or a Gothic look. So what is there about that inspiration we can pull and add to our basic look?"

Downstairs, the creative director for men's clothing is experimenting with the chain's No Boundaries label, which he describes as an "Urban Outfitters meets American Eagle meets Abercrombie & Fitch sort of look." Norris has proposed a rugby-style T-shirt with a graphic on the chest and stripes on the shoulder. The graphic will resemble a crest "which is sort of Victorian" he said, in a nod to the emerging trend.

Translating inspiration into a product at Wal-Mart is not always easy, as the designers are finding out. For this fall, Neulander, the creative director for home, had lobbied for sateen bed linens with a Jacquard weave, a trend she had spotted in her research. Wal-Mart, however, toned down the pattern. But she thinks her original idea will happen for spring 2006. "I feel like we missed it for four to five months," she said.

When it comes to spotting trends, Bentonville is "uncomfortable. It's like something over there," she said, pointing to the distance, "that they are not used to."

"I don't want to look like yesterday," she said, "even for that traditional customer."

The Trend Office itself is classic Wal-Mart, with penny-pinching touches like fake hardwood floors. The cubicles, tables and chairs are standard-issue from Bentonville. But, in a nod toward the office's fashion ambitions, workers asked to use wall paint a shade brighter than the grayish Wal-Mart white, and to splurge on a set of stools from Design Within Reach. Quotes from Sam Walton cover the walls.

"We try to live the culture of Wal-Mart, to an extent," said the head of the Trend Office, Lisa Waltuch, standing in front of a window, whose shade, in certain lights, reveals a photo of Sam Walton.

Of course, they are also challenging that culture. Recently, the New York staff began pushing their counterparts in Bentonville to carry more skirts, given the amount of attention that longish gathered, patterned skirts have been getting in the fashion press. "Their response was, 'Oh, we've never done well with skirts,' " recalled Waltuch. "We said, 'You have to get a couple of them in your lines.' " (There are several currently at Walmart.com.)

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.

The Trend Office is branching out into design, too, pitching its own back-to-school collections for fall 2006. The proposals, created by the former West Elm designer Rahn, include sleek fluted lamps, bolster pillows, claw-foot coffee tables and retro-inspired alarm clocks.

The most dramatic product changes are yet to come, but the future is sprinkled -- albeit sparingly -- across a Wal-Mart in Alexandria. There are green and red vintage track jackets, with thick white stripes across the shoulder, for $14.72; pink and gray plaid women's cropped pants for $14.84; and a tiered pink and lime poncho for $9.96.

But as Wal-Mart steps out of its comfort zone, it runs the risk of walking right past its conservative shoppers. A risque new line of T-shirts for the teen and tween set carries sexually suggestive messages such as "My boyfriend is out of town," "Meet me after school" and the brief but provocative self-description "Easy."

"Disgusting," was the verdict from an expectant mother who checked out the shirts at a store in Bentonville recently but who refused to divulge her name, worried it would leave her unpopular in what is, she noted, "a one-company town."

While customers fret over T-shirts, the New York staff is worried Wal-Mart will falter when it comes to displaying its trendy new merchandise, putting, say, a modern-looking horizontal striped plate next to one with a grandmotherly floral pattern.

Watts called Wal-Mart's uneven product presentation a "real issue." To fix the problem, the chain has quietly hired 350 "style police" -- the official title is fashion merchandiser -- who travel from store to store teaching employees how to display trendy new products.

Don't expect the chain to sacrifice coveted shelf space for a mock living room a la Ikea, but Watts said she is experimenting with a display fixture that would showcase coordinated pillows, vases and candlesticks from its Home Trends collection.

New advertising, in print circulars, on TV commercials and at Walmart.com, will reinforce the idea of Wal-Mart as the purveyor of a lifestyle, not just a cheap set of sheets and curtains. One new TV spot, set against a fast-paced hip-hop beat, features a college freshman setting up his dorm with such metrosexual touches as a plush lime-colored stool and color-coordinated bed sheets.

The image is positively Target-esque.

In a first, Wal-Mart is reaching out to the fashion industry bible Vogue. An advertisement in an upcoming issue depicts Wal-Mart shoppers discovering style in the store, said Julie Lyle, the chain's vice president of marketing and advertising.

Back on the sixth floor of the New York Trend Office, above a rack of tunics, camisoles and jackets picked up from boutiques in Paris, London and New York, is a quote from Sam Walton, stenciled on a wall painted Wal-Mart blue.

"You can't just keep doing what works one time. Everything is changing. To succeed, stay out in front of changes."

Yoshioka looked up at it and smiled. "They're trying," she said. "They're really trying."

Fran Yoshioka, consultant for women's trends, is looking to the turn of the last century for fall 2006 themes.

Handbags inspired by the trendy UGG sheepskin collection and crescent shapes seen by Fendi, Marc Jacobs and others are found at Wal-Mart, albeit made from more modest materials.

Bath accessories reveal a contemporary edge unusual for Wal-Mart.