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The Logic Behind Walmart’s Recent Acquisitions

by | Apr 17, 2017 | eCommerce | 1 comment

Just when analysts were trying to dissect  Walmart’s recent acquisitions of Shoebuy.com ($70 million) and Moosejaw ($51 million), last month they saw one more acquisition by the retail giant, with another now on the horizon.

Walmart’s ModCloth Buy

Walmart purchased ModCloth for a price between $50 million and $75 million. ModCloth founder Susan Gregg Koger had her reasons to go for this move. It may give her products the more reach and visibility- something which is expected when you get aligned with big names like Walmart. But the truth is the brand, which started out in a college dorm room, and over the past 15 years grew to be one of the biggest independent online fashion retailers in the world, was going through a crisis. It has also seen rounds of  recent layoffs. But the move that Gregg Koger considered a necessary evil has clearly not gone down well with her brand loyalists and brand enthusiasts.

Anyone who has followed ModCloth keenly will understand that it’s a brand with indie cred. Known for its inclusive sizes, vintage-style clothing, supportive attitude towards independent designers, and Photoshop-free advertising, ModCloth has always endorsed inclusive, progressive and pro-feminist business practices. Susan didn’t even hesitate in slamming Donald Trump on the issues of women. Naturally, fans have been finding it difficult to see why such a brand with fearless views and spirited founder would park itself in the lot of Walmart.

ModCloth is known for its free-spirited vibe and representation of all types of women.

ModCloth is known for its free-spirited vibe and representation of all types of women.

The largest retailer in the country has been an object of scorn for many due to its low pay and anti-union tactics. After a lot of criticism, Walmart raised its corporate minimum wage from $9 to $10 in 2015. These well-documented shady ethics of Walmart have upset many women, as ModCloth’s progressive messaging and thinking is at odds with Walmart’s business practices. This sentiment is apparent in various comment sections of articles discussing the latest of Walmart’s recent acquisitions:

“Amplify your message by joining a company that keeps women in poverty while lining [Walmart’s] pockets with more and more money? No thanks. You’re deleted. Know your audience.

“Walmart doesn’t respect their workers or respect women. You’ve sold out to one of the worst companies in the world. They don’t pay a living wage, a huge percentage of their workers are on food stamps, and they hold holiday food drives so their employees can feed their families at Thanksgiving and Christmas. They’ve been sued for gender discrimination. They refuse to stop using sweatshops in other countries. This is a major disappointment. I’m done shopping with you.”

“Walmart has horrid business practices, doesn’t believe in the power of a union, and refuses to give their employees anywhere near a living wage. I’m sorry, even if they’re your parent company – I cannot in good standing support your business anymore.”

Read on below for more about Walmart’s recent acquisitions…

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And Now, Bonobos

Before the dust of this controversial acquisition has died down, it’s been reported that Walmart is in the last leg of talks to acquire Bonobos, a 10-year-old men’s fashion retailer based in New York City. According to the industry experts, this deal will be costlier than Walmart’s other acquisitions. Bonobos has between $100 million and $150 million in annual revenue and is in better financial shape than ModCloth. It’s important to know that it valued $300 million in 2014. For Bonobos, the move makes a clear sense. It has already raised more than $125 million from investors like Forerunner Ventures, Lightspeed and Mousse Partners in part to fuel this expansion. However, it is finding it difficult to raise more money and come up with investment terms that will satisfy all the involved parties.

Bonobos is another brand that’s known for its innovation and youthful spirit. It’s popular with millennials and has gained attention in the industry for its “fit shops”–brick and mortar locations that streamline inventory and logistics by only being a space for customers to try on clothing. Instead of sending them home with their purchases, Bonobos ships orders to these shoppers.

Bonobos is extremely popular among stylish, affluent, young men.

Bonobos is extremely popular among stylish, affluent, young men.

The Logic Behind Walmart’s Recent Acquisitions

The most prominent understanding that all of Walmart’s recent acquisitions is that the retailer is trying hard to reach new markets and channels. In his seven-month tenure as Walmart’s U.S. e-commerce CEO, Marc Lore has spearheaded three other acquisitions. It began with the acquisition of Jet.com.

It’s interesting to note that all these new acquisitions have been happening under Jet.com, which is a Walmart subsidiary and was founded by Lore. Walmart bought Jet.com and poached Lore in August. If one looks at the acquisitions of Shoebuy.com, Moosejaw, ModCloth, and Bonobos, it’s quite clear that Walmart is targeting the special product categories that appeal to millennials–a demographic which was never a core buyer of Walmart. By roping in fashionable brands that stand out to this audience, it is trying to stay alive in a deeply competitive retail landscape by safeguarding and enhancing its customer base. Indeed, last summer Walmart announced their intention of expanding their millennial fashion offerings.

The another reason that has shaped Walmart’s recent acquisitions is that Walmart never really had singularly fixated attention on e-commerce. That has changed in just a year. Walmart has tried to acquire customers by opening physical stores in new markets. But 2016 saw closures of most of the Walmart’s convenience-sized stores (“Walmart Express”) in urban areas. It has actually forced Walmart to move into e-commerce zone…and gobbling up these online retailers will help Walmart in catching up with Amazon, an initiator of e-commerce. In that sense, buying Jet.com for more than $3 billion was a move in that direction. Plus, Walmart also made two-day shipping free on all online orders over $35, without any membership fees to compete with Amazon’s popular Prime shipping program.

Clearly, when looking Walmart’s recent acquisitions, these are strategic buys with an aim of building e-commerce reach, capabilities, and assortment into critical categories. As explained earlier, it will open up a whole new path for Walmart through which it can have access to the shopping world of millennials. With $1.3 trillion annual buying power, they have already become indispensable customers for any business. And all these factors will form a pivot if Walmart has to position itself as a serious competitor of Amazon!

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  1. avatar
    Oscar
    on April 19, 2017 at 3:14 pm

    Those of the ModCloth crowd that disdain Wal-Mart for its, so-called, misogyny and low-paying jobs, remember – places
    like these are not expected to pay $75000/yr. for someone to flip burgers or to hang clothes on a rack! Jobs like these are
    for those beginning into the workforce – and not for a thirty year career. If you want or need a higher wage, go earn it – it’s
    called, “competition” in a free-market economy…

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