What will Walmart do with its newest acquisition, ModCloth?

Discussion
Photo: ModCloth
Mar 16, 2017
George Anderson

Those who thought that Walmart’s acquisition of Moosejaw came out of left field should be prepared for another stunner. According to reports, the retailer is about to become the proud owner of ModCloth, an e-tailer known for selling vintage-inspired clothing for women of all shapes and sizes, as the result of an acquisition made by its Jet.com business.

The news of the deal, which was first reported by Jezebel, appears to have come as a shock to the rank and file at ModCloth. The company’s CEO, Matthew Kaness, notified employees of the deal yesterday, and current staff received employment offers from Walmart. Closing on the acquisition is expected to happen today with a formal announcement made on Friday.

ModCloth has gone through a difficult period over the past two years, seeing several rounds of layoffs. The company, which grew sales to $150 million by the end of 2015, has found it difficult to turn a profit. Venture capital, which flowed freely in ModCloth’s earlier days, has been hard to come by. According to a Recode report, ModCloth may not even get the nearly $80 million investors put into the company in its deal with Jet.

As reported by CNBC, Walmart CEO Doug McMillon, who spoke earlier this week at the Bank of America Merrill Lynch Consumer & Retail Technology Conference, said access to new product assortments was a deciding factor in recent deals made for Moosejaw and ShoeBuy.com. It would appear the same is true in the case of ModCloth.

“We can pick up some of these companies that are great in terms of the assortment and the service they provide, but they don’t have enough money to lose, to go market their brand and scale it,” said Mr. McMillon.

DISCUSSION QUESTION: What do you expect Jet.com and Walmart to do with ModCloth? Are concerns about the cultural fit between ModCloth and Walmart valid when assessing the likelihood of future success?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"This seems like a good fit for the Walmart customer due to its diversity and price points."
"To be honest, my head exploded when I read that ModCloth sold."
" I predict that in two years, both the ModCloth and Moosejaw brands will hardly exist within Walmart."

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15 Comments on "What will Walmart do with its newest acquisition, ModCloth?"


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Max Goldberg
Staff

Smart move by Walmart — buying ModCloth at a discount will add to the company’s growing lineup of e-commerce offerings. Walmart management knows it must diversify. Rather than struggle to find innovation within, it’s easier to acquire it.

Di Di Chan
Guest

Walmart is accelerating its online presence just as Amazon is starting to come offline. When Walmart pushed free two-day shipping (with no membership fee) it was a direct move to compete with Amazon online. The acquisition of online fashion brands are no exception. Amazon brought Zappos, Jet.com brought ShoeBuy. Amazon started eyeing fashion acquisitions (e.g. American Apparel earlier this year); Walmart acquired ModCloth to add to their online portfolio.

It’s a competition between two giants for both online and off-line dominance. I anticipate both companies will be pushing for more technology and more acquisitions in a race to brand themselves as the default “one-stop” shopping center for most consumers.

Lee Kent
BrainTrust

I too felt the Moosejaw acquisition came out of left field but not this one. This seems like a good fit for the Walmart customer due to its diversity and price points. Also, sounds like they got a good deal.

For my 2 cents.

Tom Redd
Guest

For my $9 the ModCloth deal will take time to integrate due to the unique people at ModCloth. After that is done then the ModCloth team will drive a strong level of demand on a new powerful platform of technology and brand. Someday the Walmart of the past image will fade and the new Walmart will stand out, meaning someday Walmart may just rebrand as “W.” A cool store name owned by Sam’s Retail (or Walton Retail).

Lyle Bunn (Ph.D. Hon)
BrainTrust

Buy low and sell higher and, better still, buy low and sell lots, seems to underpin the ModCloth transaction through the Jet.com acquisition. I wonder if ModCloth has production capability and maybe even consumer awareness capabilities that allow an extension to how Walmart operates.

Brandon Rael
BrainTrust

From the perspectives of competition, diversity and inclusion, acquiring ModCloth certainly makes things even more interesting in the winner-take-all online and offline battle with Amazon. The brand-within-a-brand strategies and offering a diversity of fashion choices outside the normal Walmart assortment strategies are big wins for the organization.

Walmart has already invested significantly into growing their innovation, enhancing their technological e-commerce capabilities and achieving an economies of scale as it pertains to their commerce and fulfillment processes. Diversifying their fashion brands is key to remaining competitive with Amazon, as the two commerce giants go to an all-out strategic war to become the one-stop shop for everything.

The one component where Walmart hasn’t ventured yet is to directly compete with Amazon and Google’s AI assistants. This is the next generation of commerce, and it’s only a matter of time before Walmart throws its hat into the ring.

Jasmine Glasheen
Staff

To be honest, my head exploded when I read that ModCloth sold. Brand awareness for ModCloth among Millennials runs deep. It’s not that they sell clothes you can’t find elsewhere for cheaper, it’s how well curated of a selection they offer. The vintage aesthetic is a huge draw.

Walmart is ensuring their longevity by picking up brands that speak to the next generation. Walmart’s success in these acquisitions will be determined by their ability to allow each brand, Moosejaw and ModCloth, to continue the fun, customer-centric and slightly irreverent marketing campaigns that put them on the map.

Mazie Washington
Guest
9 months 11 days ago

I think the ModCloth we used to know and love is long gone. Most of their products are now made overseas and the quality you get for the price you pay isn’t worth it. I’ve found better deals through smaller boutiques like Jane Divine Boutique, Unique Vintage, and Lazy Caturday just to name a few. They’re able to offer better customer service and better prices IMHO.

Ryan Mathews
BrainTrust

To me, culture is the issue. The acquisition itself makes sense. The clothes seems like they will fit the Walmart shopper’s lifestyle and taste, it probably expands their customer base a little in the right direction and it helps further round out their digital portfolio. But … that still leaves the culture issue. It’s too early to say definitively but it will be interesting to see if Walmart builds two cultural models — one traditional, the other more digitally-oriented in attitude, thinking and work roles and rules. That might work although it leaves you with the “us and them” problem. Forcing digital folks to think like brick-and-mortar retailers probably isn’t a good idea and I’m not sure reversing the cultural model works much better. But Walmart is resilient, so maybe they will be the first retailer to create a true multi-channel culture. If they are, they will be even harder to stop.

Anna Tolmach
BrainTrust

From Walmart’s perspective, the cash is a throwaway. I predict that in two years, both the ModCloth and Moosejaw brands will hardly exist within Walmart. What this also highlights is the difficulty of being a venture-backed e-commerce-only business (ModCloth, Nasty Gal, Jackthreads) as many have suffered setbacks. Venture funding can be terrible for these companies because it encourages them to pursue unsustainable and unprofitable growth.

Mohamed Amer
BrainTrust
Jet.com is going on a shopping spree for a portfolio of deeply discounted online properties that can easily plug in and extend the assortment with fresh designs and propositions that honor all body sizes and shapes. However, that doesn’t come without a price. ModCloth is an unabashed community-conscious activist on social issues that matter to their employees and customer base. These are values that form their brand and resonate with their customers. The culture mismatch is real but this tension can bring future benefits to Walmart — that’s how change happens. Over the next year or so we’ll be in a better position to see tangible organizational and process moves resulting from the Jet.com acquisition. We’ll also see if Jet.com is able to provide a space for the new online acquisitions to flourish and scale while maintaining the core values that motivated their customers or not. Walmart became the largest retailer in the world by following a consistent and predictable formula. Online retailing is changing the retail landscape and in pursuit of growth, retailers have… Read more »
Morgan Linton
Guest
I think this is a win for both Walmart and ModCloth and will likely be the missing link ModCloth was looking for to truly scale. ModCloth has done an exceptional job of really connecting with their customers and making clothes that fit their body. Fit has been a huge priority for ModCloth and I think a lot of the ways in which they think about and optimize fit will likely flow into Walmart and their own private label brands. Selling physical goods at scale is exceptionally challenging and it looks like the VC path wasn’t going to provide the capital required to really take ModCloth to the next level. When it comes to selling physical goods at scale it’s hard to think of a company that has been able to do this better than Walmart. Now all this being said, I’d imagine that ModCloth and Walmart have relatively different cultures. I don’t know enough about what it’s like to work at either, but I would expect some of the ModCloth employees to leave during this… Read more »
Patricia Vekich Waldron
BrainTrust
Patricia Vekich Waldron
Founder and President, P2 Advisors
1 year 4 months ago

Walmart is taking a page from departments acquiring online stores-within-stores. I think it’s a smart move to increase range and channel options for consumers.

Brian Kelly
Guest
1 year 4 months ago

If Walmart is smart, they will leave ModCloth alone. Let it continue to delight its customers. And go to school on how that shopper segment behaves.

As Amazon creeps into bricks, it is doing the same thing. Test and learn.

Any acquisition offers the opportunity for disaster. In this case, WMT/McMillon has jet.com/Bore as a barrier to Bentonville’s myopia, “not invented here” syndrome, and ever present FoxNews on its TVs.

I like where WMT is going. If you are going to compete with the long tail, you gotta get a long tail. And the recent acquisitions give WMT breadth that prior to them, it didn’t possess. The previously acknowledged diversity here is as much in “lifestyle” as it is in age. Moosejaw brings it too. Both could help if it wants to pursue college campus and thwart the Amazon and Target incursions.

I wish them well because we need alternatives to Amazon, and ironically WMT is the much needed diversity.

Ricardo Belmar
BrainTrust
Maybe it’s just me, but doesn’t this feel a bit like Walmart transforming into a more Target-like assortment? ModCloth has a very specific customer demographic that is very loyal and likely does not overlap with Walmart’s. Target for years developed their apparel business into something customers desired as fashionable at a good value price. And now, while apparel segment retailers are suffering (look at the recent long list of store closings from department stores to specialty apparel including J.C. Penney, Macy’s, Aeropostale, Finish Line, American Eagle, BCBG, American Apparel, Wet Seal, and the list goes on), Amazon has transformed itself into the soon-to-be largest apparel retailer. So what does Walmart do in its battle with Amazon? Buy an apparel brand with a loyal base (that surely expands Walmart’s customer base) with great potential but struggling on its own to succeed. This looks to be a good match especially if Walmart lets them do what they do best and doesn’t try to absorb it into their existing structure. This has the makings of a store-in-a-store style… Read more »
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Braintrust
"This seems like a good fit for the Walmart customer due to its diversity and price points."
"To be honest, my head exploded when I read that ModCloth sold."
" I predict that in two years, both the ModCloth and Moosejaw brands will hardly exist within Walmart."

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