Unless you’ve been living under a rock for the past few months, you probably know the very unconventional answer to that question.
As Wal-Mart Stores Inc. accelerates its efforts to go up against e-giant Amazon Inc. for dominion over every sellable item, the retailer is making a series of seemingly unusual — but smart, by many accounts — business moves.
Its latest acquisition — a $310 million buyout of high-end menswear brand Bonobos — is moving Walmart closer to becoming a formidable player in the fashion industry. But as raised eyebrows abound, understanding the strategy driving Walmart’s recent decisions is crucial.
Here, we round up five things to know about Walmart’s fashion acquisitions.
Taking a Page From Amazon’s Playbook
Every battle in the war between Walmart and Amazon has been well-documented in recent months. Experts agree that the two giants are moving aggressively toward each other’s wheelhouse — i.e., Walmart is ramping up digital and fashion, and Amazon is taking on brick and mortar and grocery (see: $14 billion Whole Foods acquisition).
In a June 19 memo, Susquehanna Financial Group LLLP analyst Bill Dreher said he believes that Walmart’s e-commerce growth tactics mirror Amazon’s earlier playbook.
“We view Walmart’s e-commerce strategy in a very similar light as early Amazon’s,” Dreher wrote. “Amazon made several category acquisitions during the first decade of this millennium, and Walmart is now doing the same to catch up.”
Talent Retention Will be Critical to Success
While Walmart’s business savvy and ginormous retail presence is a case study for many an MBA scholar, the retailers’ fashion knowledge has never been highly regarded. When Walmart announced its acquisition of Bonobos last week, the deal was immediately met with criticism from high-end fashion enthusiasts who were concerned that a connection with Walmart would tarnish the brand’s image and that the label may move down-market.
To that, experts say Walmart must retain Bonobos talent in order to be successful.
And the apparent good news is that that seems to fit precisely into Walmart’s strategy to learn from fashion insiders and expand its reach in the category.
“Adding innovators like Andy [Dunn, founder and CEO of Bonobos] will continue to help us shape the future of Walmart and the future of retail,” Marc Lore, president and CEO of Walmart U.S. eCommerce, said last week of his plans to retain Bonobos’ team. “I’m thrilled to welcome Andy and the entire Bonobos team. They’ve created an amazing product and customer experience, and that will not change. In fact, Andy will be a great influence on the company, especially in leading our collection of exclusive brands offered online.”
Pump Up the Profits
Bonobos is known for trendy and well-fitting men’s clothing, but according to Cowen & Co. analyst Oliver Chen, Walmart will help the brand appeal to a wider audience and pump up its revenues.
“We would expect Bonobos to gain capital and financial flexibility to expand physical locations from 34 currently, partner with Jet.com and other Walmart assets and brands to gain new customers, and be able to utilize Walmart’s technical expertise and capabilities in shipping, procurement and global reach,” Chen wrote on April 17 in anticipation of the acquisition.
Similarly, when Walmart, through its Jet.com arm, purchased ShoeBuy in January, the company touted expansion for the e-tailer by offering ShoeBuy vendors the ability to sell to a larger audience via Jet.com. (Walmart, through ShoeBuy, also snapped up the domain Shoes.com from its defunct Canadian parent company in April.)
This Is Only the Beginning
When you’re looking for a snazzy ballgown or LBD for an upcoming shindig, in the future, popping into your neighborhood Walmart could be the way to go.
“Walmart has also been strategic in acquiring companies that are having trouble raising additional rounds of financing, getting a better price as a result,” Dreher writes. “We anticipate [Walmart] will continue to acquire small brands and add them to the Walmart.com family and leverage the talent at those companies to grow online.”
More than expanding Walmart’s presence in the fashion industry, the retailer’s footwear and apparel acquisitions are likely part of a larger play to rebrand the company and overcome an often negative public perception.
“Walmart’s biggest impediment to success as an omnichannel retailer is the negative perception of the company that portions of the population have,” Dreher writes. “While companies like Amazon are thought of as innovators, Walmart is seen as scary and destructive.”
Dreher said that such negative perceptions do not reflect the positioning of Walmart today or “the improvements made by CEO Doug McMillon in recent years.”
“With Amazon’s announcement of the acquisition of Whole Foods, the comparison between the country’s two largest retailers will become even clearer, and people will start to see that the fundamentals of the two businesses are not as different as one would perceive,” he noted.