Should Walmart buy Birchbox?

Discussion
Photo: Birchbox
Aug 10, 2017
George Anderson

Birchbox, the monthly service that sends four or five samples of prestige and niche beauty and grooming brands to subscribers for $10 a month, has held talks with several retailers, including Walmart, about a potential sale, reports Recode.

The company, which was founded in 2010, has had discussions about a possible sale as it faces a debt payment next year. In 2016, Birchbox laid off workers as it sought to reach profitability after years of focusing on growth. According to Recode’s reporting, the company has been profitable excluding interest and taxes this year.

The report that Birchbox co-founder and CEO Katia Beauchamp has held talks wth Marc Lore, Walmart’s e-commerce chief in the U.S., is not surprising. The retailing giant has focused on making acquisitions that go beyond Walmart’s core customers since Mr. Lore came on board last August as part of the retailer’s $3.3 billion acquisition of Jet.com. Walmart’s acquisitions include Bonobos, ModCloth, Moosejaw and ShoeBuy.com. Walmart.com has also greatly expanded the number of third-party sellers on its marketplace as it seeks to narrow the online market share gap with Amazon.com

Neither Birchbox nor Walmart has commented on the Recode report.

Birchbox subscribers can buy full-size versions from the company after receiving their samples. Customers who purchase full sizes receive $1 back in loyalty points for every $10 they spend.

According to estimates, full-size product sales represent 30 percent of Birchbox’s revenues.

While founded as an e-tail entity, Birchbox currently operates two permanent physical locations. It opened its first store in Manhattan’s SoHo neighborhood in 2014 after finding success with pop-up locations in New York City and the Hamptons.

DISCUSSION QUESTIONS: Would a Walmart acquisition of Birchbox make sense for both companies? Are there other retailers that you think should have discussions with Birchbox?

Braintrust
"I’m not sure I’d have called it an obvious fit, but I can see the sense in it if it went ahead."
"Although Walmart has been reaching beyond their core customers with some of their latest acquisitions, Birchbox seems far too upscale for a fit."
"...a lifeline/sale from a larger retailer seems like a much better bet than an IPO or more rounds of funding."

Join the Discussion!

20 Comments on "Should Walmart buy Birchbox?"

Notify of

Sort by:   newest | oldest | most voted
Art Suriano
BrainTrust

Walmart is making a substantial effort in building its e-commerce presence as Amazon is making a strong attempt in brick-and-mortar. I see this period of both companies buying what they can and eventually leveling out what they own by merging the businesses that are working and shutting down those that are not.

Over the next 10 years we will see Amazon with a lot more brick-and-mortar stores. And we will see, for both companies, an internet very different from today as technology continues to evolve. So I can see purchasing Birchbox as another move by Walmart to continue their process of becoming a dominant player in the e-commerce world and competing with Amazon.

Jon Polin
BrainTrust

Marc Lore is making bold moves for Walmart. He seems to be interested in buying vertical e-commerce sites that engage an atypical Walmart customer in categories with high engagement/frequency and at a price that now seems low-to-affordable relative to the company’s prior growth rates. With this formula, Birchbox in 2017 makes perfect sense.

Dave Bruno
BrainTrust

The potential Birchbox acquisition seems squarely aligned with Walmart’s recent acquisitions of Bonobos, Moosejaw, et al. I must confess, however, that I don’t fully understand the strategy beyond a desire to expand their reach to be more competitive with Amazon, as these brands sit fairly far outside the circle of Walmart’s brand promise. As such, I am not sure I can endorse another acquisition in a similar vein …

Joanna Rutter
Guest
10 days 22 hours ago

That “brand promise” point is key, Dave. Walmart’s all about low prices, and acquiring these online retailers selling more upscale or higher-priced goods doesn’t seem to fit. But in the case of Bonobos and Birchbox, which are both clicks-to-bricks cult brands following the slightly tired but trustworthy Soho pop-up trend, Walmart does already know that those products bring foot traffic in to stores. When Walmart can make a decision based on in-store data that’s already been gathered, I think it starts making more sense.

Lee Kent
BrainTrust

Although Walmart has been reaching beyond their core customers with some of their latest acquisitions, Birchbox seems far too upscale for a fit. I simply do not see the typical Walmart customer, with less discriminatory spend, spending it on prestige grooming products. The sample concept — maybe, but would that sustain Birchbox? I don’t think so. And that’s my 2 cents.

Lyle Bunn (Ph.D. Hon)
BrainTrust

The real question seems to be one of make or buy. Can the acquisition of Birchbox customers be replicated at acceptable cost? Can the targeting and analytics models be created and improved upon? Can seller relationships be set up to achieve critical mass and be relevant quickly and can fulfillment processes be put in place? It is a make or buy question, and I suspect that Birchbox will get a minimal return upon exit, with some central people and players being provided an acceptable deal to continue to build the capability and not compete.

Cate Trotter
BrainTrust

I can see the logic behind this possible acquisition — like a lot of people, I see this as part of Walmart’s strategy to compete with Amazon. It continues the company’s recent trend of buying up established e-commerce businesses. Obviously for Birchbox there would be scope to tap into Walmart’s huge client base, but there may also be some benefits in terms of Walmart’s expertise in running physical stores. I’m not sure I’d have called it an obvious fit, but I can see the sense in it if it went ahead.

Ian Percy
BrainTrust
Two factors indicate I should mind my own business on this discussion topic. First, I’m probably in more need of beauty products than any other BrainTrust colleague. And second Birchbox at least seems to be doing okay and will make some founders very rich at some point. I can only wish. It’s the business model I don’t get. For $10 I get four or five $2 samples of elite (aka expensive) beauty products. The idea, I assume, is to graduate consumers to the really expensive full-size containers of the products they absolutely love. But then the samples just keep on coming. (If I’m paying for them I don’t think they should even be called “samples!”) So what is the end game — or is there one? Maybe it’s just that consumers love trying and collecting beauty products and are happy to pay even for tiny jars that cost more than the product inside them. It reminds me of my constant travel days where I ended up with many hundreds of true samples of creams, shampoos, mouthwash, soaps, conditioners, emory boards, shower caps and goodness knows what else. I hadn’t used a full-sized anything in years. At some point I came… Read more »
Kiri Masters
BrainTrust

Your question about the business model is a good one. Granted that you’re clearly not the target market, but if you take the financial issues of the company at face value, something’s amiss with the economics.

Brandon Rael
BrainTrust

It’s rapidly becoming a digital brand portfolio play and competition between Walmart and Amazon, as they race for marketplace dominance. While the fruits of the Bonobos, Modcloth and Jet.com acquisitions are very much a work in process, Walmart is rapidly diversifying and transforming their digital fashion retail portfolio. The acquisition of Birchbox just might be a very wise strategic move, as there are shared synergies and economies of scale that can be achieved with these digital native brands.

Certainly the core customers of the traditional Walmart brick-and-mortar model are different from those of the emerging digital native fashion powerhouses. However, the Walmart digital team and portfolio are rapidly growing, diversifying and are a force to be reckoned with.

Sterling Hawkins
BrainTrust

Right on that the traditional Walmart customer probably isn’t the Birchbox customer. Walmart has been on a roll lately though expanding beyond their roots to reach new customers and to reach existing customers in a new way. I wouldn’t say this deal is a natural, but I can see a scenario where Walmart makes it work.

Janet Dorenkott
BrainTrust
10 days 23 hours ago

I’m not sure the business model for Birchbox is good for anyone long term. The concept of paying $10/month for samples, doesn’t appeal to me at all. As a woman who uses beauty products, I can tell you that I am very loyal to products that I like. I will occasionally try something new, but that’s rare. Many women experience reactions on their skin when trying new products. It’s something that most of my friends avoid unless they have a persistent problem. I understand, they are trying to sell them the bigger versions of product, but the ongoing subscription makes no sense to me.

Joanna Rutter
Guest
10 days 22 hours ago

I feel the same way. Samples are fun (Sephora, Glossier and OUAI are great examples of brands that do this to delight and engage their customers) but one bad breakout could turn you off to the experience forever. Birchbox always seemed overtly pandering to the “monetizing millennials’ demand for experience and hatred of loyalty” myth that drives me up the wall as a marketer, too, so I’ve steered clear.

Jeff Miller
BrainTrust
A Walmart acquisition of Birchbox certainly makes sense for the Marc Lore, new Walmart strategy of buying “cool” e-tail brands that frankly have almost zero impact on Walmart financials. The Jet acquisition was a big swing, but these others will end up being rounding errors in the overall long-term financials, gives them some good PR and maybe adds a few non Walmart customers to their databases. From the Birchbox perspective, a sale to Walmart or another retailer is bordering on a necessity. Katia and her team have made some hard, smart and commendable changes to their business and operations to move towards profits after 7 years chasing growth. However, they are still losing the battle to more focused IPSY who are riding a wave of digital influences and deep pocketed Sephora Play Box who use the subscription as a marketing tool to drive store engagement in the market that Birchbox pioneered. They also have still have some business practices like running customer service from a NYC address that make it difficult to compete in a hyper competitive beauty industry that like everything is moving towards long tail products, ingredients and problem/solution on Amazon and less on brands. I am rooting… Read more »
Ricardo Belmar
BrainTrust

Given the recent acquisitions Walmart has made, I can see the logic behind this possible purchase. However, unless the strategy is to cultivate a completely different and unique customer base from the existing Walmart base, I don’t see the purpose behind these acquisitions. The customers of each of these brands (Bonobos, ModCloth, Moosejaw, Shoebuy.com, Birchbox) seem very far off from the value conscious Walmart shopper. Perhaps we’ll see Walmart create a new brand to hold all of these products that they run separately from core Walmart stores and address two different customer segments?

Craig Sundstrom
Guest

Crazy idea … but crazy smart or crazy stupid (or just plain weird)? Superficially, the companies seem to have little in common — other than that they’re both retailers — so I’d have to see a better explanation of what someone sees in this idea. For Walmart, of course, it would just be playing the penny slots, but for Birchbox it would likely be a life changing event, so I would expect a lot of resistance. I don’t think the founders or even many of the customers envisioned its destiny was to become a drop of water in the ocean that is WM.

Joanna Rutter
Guest
10 days 22 hours ago

Reminds me of the Anheuser-Busch purchase of Wicked Weed and the corresponding outrage by craft brewers here in NC. Your brand reputation can’t stay intact when you make a move like that.

Patricia Vekich Waldron
BrainTrust

I’m all for it — reaches a new online demographic and I can picture BirchBox Boutiques in WMT stores.

Phil Chang
Guest

The real question is whether Walmart is changing its stripes. This is different than acquiring Jet or Bonobos etc. Subscription boxes are experiential. They aren’t about driving trial or driving large shopping baskets or, generally, demographics of households on tight spending budgets.

Walmart has a mantra of being the lowest price in the market, and providing an all-around shopping trip that helps families stick within a budget. I don’t really see how Birchbox helps with any of that. So back to the opening question — is Walmart changing it’s stripes?

Franklin Chu
BrainTrust

Buying Birchbox would further strengthen Walmart’s e-commerce strategy to compete against Amazon by helping Walmart attract younger and higher-income consumers. Walmart’s world-class fulfillment and operations could strengthen the awareness and reach of e-commerce brands like Birchbox. Walmart could also help brands expand their omnichannel experience, including in-store pick-up and ship from store.

On the other hand, the retailers’ core audiences differ significantly. Loyal Walmart customers who value the retail giant’s Everyday Low Price strategy contrast with the relatively young, trendy and tech-savvy shoppers who buy from Birchbox, Modcloth and Bonobos. While buying Birchbox would expand Walmart’s reach, how Walmart will manage the massive traffic from different customer groups remains a challenge.

wpDiscuz
Braintrust
"I’m not sure I’d have called it an obvious fit, but I can see the sense in it if it went ahead."
"Although Walmart has been reaching beyond their core customers with some of their latest acquisitions, Birchbox seems far too upscale for a fit."
"...a lifeline/sale from a larger retailer seems like a much better bet than an IPO or more rounds of funding."

Take Our Instant Poll

Do you agree that a Walmart acquisition of Birchbox makes sense for each company?

View Results

Loading ... Loading ...