By Sarah Nassauer
Wal-Mart Stores Inc. is rapidly buying up hip, small online
retailers that appeal to wealthier shoppers in hopes of finally
taking on Amazon.com Inc.
Last week Wal-Mart acquired hipster clothing website ModCloth.
In February it bought outdoor specialty retailer Moosejaw and the
month before, online shoe seller ShoeBuy.
The small deals give Wal-Mart access to new groups of shoppers
and brands that have shied away from the retail giant, which has
struggled with mostly sluggish online sales growth the past two
years.
Wal-Mart plans to let the retailers run as separate entities,
the first time it has attempted to build new e-commerce brands in
the U.S. However, some of the deals shed light on the extent of
Wal-Mart's wider image challenges and the balancing act faced by
small e-commerce startups looking for a payday.
After news of the ModCloth deal surfaced last week, shoppers
took to Facebook and Twitter to critique Wal-Mart's image as out of
line with ModCloth's feminist, socially liberal and plus-size
inclusive branding.
"Wal-Mart has such a terrible track record. They are so
adamantly antiunion," said Aimee Ledwell, a 41-year-old teacher who
lives in Maynard, Mass., and owns about 15 dresses purchased on the
site. After news of the deal, she said she erased the ModCloth app
from her phone.
"Wal-Mart today is very different than some of the perceptions
people still hold," said a company spokesman. "All the things that
made customers love these brands in the first place are not going
away, they'll only get stronger," he said.
The buying spree started after Wal-Mart bought Jet.com Inc. six
months ago for $3.3 billion, installing the site's founder Marc
Lore at the head of its U.S. online operations.
"Assortment is driving a lot of these acquisitions," Wal-Mart
Chief Executive Doug McMillon told investors last week. "There are
some suppliers that don't want to sell on Wal-Mart." Wal-Mart also
wants the talent and product expertise the employees provide,
executives say.
Moosejaw, known for its irreverent marketing and loyal Michigan
following, gives Wal-Mart access to outdoor brands like Patagonia,
Arc'teryx and North Face, even if they aren't sold through Wal-Mart
directly. Its chief executive, Eoin Comerford, will take charge of
the outdoor category on all Wal-Mart websites.
ModCloth, Moosejaw and ShoeBuy are part of a growing group of
online retailers confronting the challenge of competing with the
fast shipping and large assortment of Amazon or increasingly savvy
suppliers selling directly to shoppers.
ModCloth's traffic and revenue has been weak in recent years,
said people familiar with the financial statements. It had a large
debt payment coming due, said one of these people. Wal-Mart bought
the company for less than the roughly $75 million ModCloth raised
in venture capital, plus its debt, said this person.
Last week the San Francisco-based firm's co-founders Eric Koger
and Susan Gregg Koger sent an email to a small group of people who
hold employee stock entitled "The death of ModCloth's common
stock." Employees and the co-founders won't make any money from the
sale, Mr. Kroger wrote in the email, which was reviewed by The Wall
Street Journal. "It just is what it f -- ing is."
The couple didn't respond to requests for comment.
Wal-Mart's purchase price is "along the same lines" as other
recent acquisitions, said a spokesman. Wal-Mart said it paid $51
million for Moosejaw and around $70 million for ShoeBuy.
The acquisition strategy is being driven largely by Mr. Lore,
who wants to take on Amazon directly and grab market share faster.
Asked at an industry event Monday if Wal-Mart would be happy as the
second-largest U.S. online retailer after Amazon, Mr. Lore
responded, "winning is winning." More acquisitions are coming, he
said. In the three months ended Jan. 31, 2017, Wal-Mart's U.S.
e-commerce sales grew at a healthy clip, up 29% from the
year-earlier quarter.
Jet.com had explored a deal for Moosejaw, which operates 10
retail stores, before selling to Wal-Mart. The outdoor retailer's
founder and family sold the company to private-equity investors in
the mid-2000s. Since then the company continued to raise money and
shift investors. Moosejaw's CEO didn't respond to a request for
comment.
Moosejaw shoppers' reaction has been more muted than after the
ModCloth purchase, but the news spurred debate. Owen McDonnell, a
31-year-old in Portsmouth, N.H., said he is wary of how Wal-Mart
may change Moosejaw. He likes buying his ski and hiking gear at
local shops that support outdoor enthusiasts, he said, and doesn't
shop at Wal-Mart. "I still remember when the first one was built in
my area and how it has changed the community and the stores that
followed."
"There has been a lot of bad press historically about the values
of" Wal-Mart but much of it is unwarranted, Mr. Lore said this
week. When Jet.com executives told employees that Wal-Mart planned
to buy the startup, "upfront people were definitely concerned," Mr.
Lore said. But after getting a firsthand look inside, "people have
turned the corner."
Laura Stevens and Khadeeja Safdar contributed to this
article.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
March 24, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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