Andy Dunn, Bonobos (left) and Mark Lore, Walmart (right) – Photo: James Tenser
Walmart is focused on expanding its digital brand portfolio
Walmart has been throwing its considerable weight into an impressive array of digital strategies, ranging from click-and-collect at its mainline stores to digital-first brands like Jet.com, Bonobos and the newly-launched Allswell.
Walmart is moving fast and making lots of news, but is the strategy making sense?
At the recent Shoptalk conference in Las Vegas, Jet.com president & CEO Mark Lore and Andy Dunn, founder and CEO of Bonobos, discussed some of the reasoning behind Walmart’s digital expansion.
“We buy companies we can help accelerate,” said Lore. “Our M&A strategy has been to buy companies with great content, great relationships and innovation.”
It’s been barely a year and a half since online discounter Jet.com was acquired with Mr. Lore at the helm. Mr. Lore has mounted a buying spree since, adding more digital-first businesses to its portfolio, with no sign of slowing down:
- Shoebuy, the pioneering online footwear site founded in 1999 was acquired in Jan. 2017 and renamed Shoes.com.
- MooseJaw, an outdoor gear retailer with ten stores and a digital presence was acquired in Feb. 2017.
- Modcloth, a women’s fashion site was acquired one year ago.
- Bonobos, the men’s fashion site, was acquired last June, with Mr. Dunn brought on board as a key executive.
- Parcel, a New York-based last-mile delivery startup, was acquired last September.
- Uniquely J, Jet.com’s private label grocery brand, launched last October.
- Allswell, an upscale mattress and bedding site created by Walmart, launched Feb. 28.
Simultaneously, Walmart has expanded its tally of store pickup locations to 1,200. Management anticipates adding 1,000 more by the end of the year, Mr. Lore said, extending Walmart’s reach to 100 metropolitan markets by year-end.
Walmart is also repositioning Jet.com, he added. “It will be more curated. We’re targeting urban Millennials, while Walmart.com does better with the middle part of the nation.”
Mr. Dunn encouraged the audience to think about Bonobos and the other digital brands in terms of their “proprietary content.” He added, “These are magical brands, with the ability to draw more people into our ecosystem.”
Mr. Lore confirmed that Walmart is “still in acquisition search mode.” He reasons that it is usually faster to buy operating digital retailers. “It would take too long to develop our own long-tail categories.”
For the acquired brands, said Mr. Dunn, “It’s not about cost synergies from Walmart. It is more about how to play offense — how to build brands in the digital age.”
Discussion Questions
DISCUSSION QUESTIONS: Do you think Walmart has a coherent digital strategy in place or is it more a set of disconnected measures designed to counter Amazon.com? Will its new and acquired digital brands succeed at attracting and keeping upscale Millennials?
Poll
BrainTrust
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Matt Sebek
VP, Digital Experiences at WWT
It’s become a real portfolio play for Walmart, as they continue to build their digital native footprint in the already competitive e-commerce space. With a coherent digital-first strategy led by the jet.com and Bonobos leadership teams, Walmart can continue to make the strategic strides necessary to shift to a more agile, scalable, consumer-first and digital-first approach.
The key is to combine all of the best practices and unique qualities of each of the digital-first brands into a combined strategy. Another critical component for Walmart, as they undergo this evolution, is to leverage their brick-and-mortar stores as a natural extension of their digital platforms.
From the customers’ perspective, they are engaging with Walmart or one of their associated online brands. There should be a seamless experience across all platforms.
Walmart has been running hard to try to catch Amazon. These acquisitions, some of which will work and others which will not, are a key part of that effort. Realizing that it was not innovating fast or effectively enough in-house, Walmart turned to Mr. Lore, former head of Quidsi, which was bought by Amazon, for answers and leadership. The over-arching strategy has been to grow more nimble and develop an effective online presence. Time will tell how effective these efforts will be.
I might suggest that Walmart’s moves could be described more as an “Amazon strategy” than a “digital strategy.” Amazon has put great pressure on Walmart to upgrade their store fulfillment and delivery options, which is likely the driving force behind investments in store pickup expansion and the acquisition of Parcel. At the same time, the Jet.com acquisition, to me, was an attempt to outflank Amazon’s endless online assortment (the announced curation plan is highly indicative of this strategy). Finally, in my opinion, the Moosejaw, Shoebuy, Bonobos and Modcloth acquisitions are a direct response to Amazon’s investments in private label brands. These all feel much more like defensive counter-moves, however, than the “playing offense” approach that Mr. Dunn suggests …
GAFA — Google, Amazon, Facebook and Apple — (and Microsoft) are the new technology superpowers. Amazon is dragging every other retailer along, assuming they want to survive. Walmart doesn’t necessarily have the inherent forward-thinking mindset of an innovator but they do have a fat checkbook. As such they can listen, watch and learn from Amazon and follow their lead. Every ecosystem needs balance. Yin and yang. The world needs a Coke/Pepsi, Ford/Chevy and Mac/PC. Amazon, although far and away a leader according to market cap, needs its yang. Walmart is an odds-on favorite because of their financial war chest. The challenge is weaving all of these acquisitions into a cohesive business model.
It is not a coherent strategy yet, but I have no doubt that it will be in the next year or so. I have heard Mark Lore speak at various conferences and he is thoughtful and determined. Walmart seems to be giving him a great deal of autonomy to make M&A decisions that make sense for his overall, but not yet clear to see, strategy of keeping up with Amazon. I would not count Walmart and Mark Lore out.
Walmart recognizes, and has recognized for years, that there is no growth in their brick-and-mortar business and that online is the future. While the specifics of that future are hard to predict, Walmart’s strategy to move in several directions at once makes ultimate sense. They will find some nuggets and grow them. They will find some failures and discard them. But they will learn much and the Walmart we see in five years will be very different from the Walmart of the past and very different than what we are seeing in these acquisitions.
The current strategy makes sense, even if it is not yet wholly unified. However, at this stage that doesn’t matter so much.
What does matter is that Walmart is prioritizing digital, is making investments in the space and is putting pieces of the puzzle in place.
All that said, it is vital that some solid growth comes from the core part of Walmart’s operation. It is equally important that Walmart uses digital to expand its customer base, especially to younger shoppers, and increase its appeal. These things are critical ingredients in attaining financial success in the digital arena.
The landscape is littered with the bones of those retailers that didn’t move fast enough to adapt to digital competitors and changing habits — Walmart gets a ton of credit for making acquisitions across multiple formats to jump start innovation and stay relevant. The Jet.com acquisition gave them access to the most sophisticated pricing algorithms in the industry; Moosejaw and Bonobos were long touted as leaders in their categories in digital innovation. These were smart acquisitions and they’ve kept the leaders that built these companies (for the most part) and will continue to drive competitive advantage inside of Walmart. Walmart is certainly not growing at the rate of Amazon but they still have 2.5 times the revenue and with it, the resources to invest in growth. Few other retailers can claim that.
At ShopTalk 2018 Andy Dunn described the Jet.com/Walmart.com strategy as similar to Netflix — a play from widely-distributed content to proprietary content. A move designed to draw customers away from other major e-commerce players (aka Amazon).
The challenge is that Amazon has the online first-mover advantage and they expected to spend over $5 billion this year alone on digital content … plus nearly $1 billion for private branded products.
It will take much more than Bonobos, Modcloth, Shoebuy and Moosejaw to pry loose some of the loyal 100 million Amazon Prime members.
Regardless, credit is due to Doug McMillon, Marc Lore, Andy Dunn and their teams for stepping into the ring and bringing more than $1 billion per day in revenue in support of their initiatives.
Ultimately consumers should win, choice will broaden, friction will be reduced and prices will compress …
Though Walmart came to the party a little late, they have proven to be a quick study. Their unique strategy to attract the younger demographic through brands they are familiar with seems shortsighted as trends fade fast with the Instagram generation. However, through acquiring these brands, over time they will be able to own a significant portion of each niche retail space if managed properly.
I think there are two parts to Walmart’s strategy. One part is, as others have noted, a “catch up” strategy. Jet.com and Parcel seem to fit into that. But I thought at the time and I continue to believe that you have to look at these acquisitions in terms of capabilities. Moosejaw has mobile capabilities that has made it the envy of the industry. Modcloth has user-generated content like almost no one I’ve seen.
What will be more important to watch, for the future, is whether Walmart is able to leverage those capabilities into other offerings. I haven’t seen much about Allswell (I’ll have to check it out). Does it use Jet.com’s pricing algorithms? Bonobos’s showroom strategies? Modcloth’s user-generated loyalty? If the answers are “yes” then I feel like I can give Walmart credit for having a coherent strategy. If the answer is “no” — as in, none of the acquired capabilities are really making it into new offerings — then, yeah, this is a shotgun approach to competing with Amazon, and I have big doubts about whether that will really pay off for Walmart in the end.
We’re not seeing a single digital strategy from Walmart but instead multiple approaches that together are designed to expand the Walmart brand into something new and intriguing. The goal is to attract new customers that otherwise would not express any interest in the native Walmart brand. Walmart knows they’ve driven the everyday low price discount brand to its natural extreme and simply can’t grow it any further without branching out into new brands and new customer demographics. The future is digital, and Walmart is smartly playing into that both for their existing base with their in-store investment in areas like pickup, and with brands like Bonobos to attract new digital-savvy shoppers. Millennials are clearly their target and they don’t need to use the Walmart brand to achieve that — better to use digital native brands for that. The best comparison would be with Amazon’s private label brands — and Walmart emulating this, too, with Allswell.
One of the primary reasons for Walmart’s long-term survival, market leadership and success, and the reason it will continue for years, maybe decades to come, is that unlike Kmart, Sears, J.C. Penney, Toys “R” Us, etc., Walmart makes all the right pivots and adjustments to changing times and consumer purchasing cycles and trends.
A large percentage of American shoppers regularly shop at Walmart, whether in a physical store or online. Walmart offers their customers Amazon-like benefits for shoppers who are more likely to patronize Walmart than they are Amazon. If Walmart creates a partnership with Humana, then a great many of their shoppers will also be patronizing Walmart for healthcare. Therefore, we should not be fooled into thinking that Walmart’s long-term strategy is to compete with Amazon, but rather it is to be a stronger, more relevant Walmart for Walmart customers.
Walmart’s moves may not contain a common thread that exposes a central strategy, but that doesn’t necessarily predict failure (or success). Walmart’s acquisitions cross a variety of formats, demographics and channels. They’re relying on their buying power, scale and cash infusion to move these companies in a positive direction.
Oddly, their strategy is probably most aligned with Netflix, who provides both resources and autonomy to young producers to build their own product. Walmart is investing in their own platforms while also providing tentacles of innovation in the form of somewhat unrelated acquisitions. Admirable.
It strikes me as ironic to cover Walmart as an “underdog story” in the digital retail era, but there it is. Amazon has set the tone, both with its breakneck innovation and its unprecedented financial muscle. Walmart seems to be attempting to reinvent itself in anticipation of a future that it could not have anticipated before the present decade.
Walmart’s digital brand portfolio could soon give birth to scattering of specialty stores located in select downtowns and malls. It has an edge over Amazon in physical retail know-how, although the gap will narrow fast.
Amazon is digital-first; Walmart is store-first. Their trajectories have them on a collision course that is re-shaping retail.
Brands have become communities of customers and Walmart is putting stakes in the ground for key battleground categories like grocery, mattresses, apparel and shoes. Backed by Walmart’s massive support infrastructure, they can quickly accelerate and cross-market businesses to aggregate customers, data and communities in new and interesting ways all while reinforcing the core brand, either Walmart’s traditional customer or more often the millennial urbanite that is attracted to Jet.com.
At Shoptalk, Mark Lore and Andy Dunn, made it clear they are prioritizing brands that reinforce the Jet.com community. Expect that acquisition trend to continue at a bold pace to appeal to the next generation of lifetime loyal shoppers.