On the surface, it may not make sense why Walmart acquired Bonobos for $310M USD last week. They both seem to be businesses that are on completely different sides of the retail spectrum. However, strategically it makes sense - Walmart is diversifying and expanding its digital portfolio, which is in line with its overall strategy. It is playing the long game of retail survival. In addition, by acquiring Bonobos it captures a younger, urban millennial consumer. This complements the other business within the jet.com stable.
Walmart has been in acquisition mode this past year, with four acquisitions in the past 12 months. It acquired Jet.com, an online retailer known for its ‘realtime pricing algorithm’, for $3.3B USD in August 2016. In February 2017 it acquired outdoor apparel retailer Moosejaw for $51M USD. In turn after being purchased by Walmart, Jet.com acquired two businesses. First, it purchased Shoebuy, an online shoe retailer, for about $70M USD in January 2017. Then, it acquired Modcloth, an online seller of vintage women’s clothing, in March 2017 for less than $75M USD.
Walmart’s digital acquisition strategy is in line with the retail industry trend. Online sales are outpacing brick-and-mortar sales. This also seems to be the case at Walmart.
According to a recent Walmart press release, ‘In its most recent quarter, Walmart saw 63 percent growth in U.S. e-commerce sales…’. To put this percentage into context, in the overall retail vertical, brick-and-mortar sales still account for close to 90% of total retail sales. This number is expected to slowly decrease over time with the growth of digital sales. Therefore, diversifying through acquisitions is a sensible approach for Walmart, as physical and digital sales proportions adjust over time.
A Give and Take
In 2007 Stanford Business School students Andy Dunn and Brian Spaly founded Bonobos, an eCom men’s apparel firm. Spaly left Bonobos to become the CEO of Trunk Club, which was sold to Nordstorm in 2014 for $350M USD. Bonobos currently has 35 Guide shops (retail stores) and is sold in 118 nordstrom stores in addition to nordstrom.com. To date Bonobos has raised $127M USD in funding and generates $150M USD in annual revenue and is reported to be profitable. Bonobos CEO, Andy Dunn will report to Marc Lore, former CEO of jet.com and now President and CEO of Walmart eCom US. Dunn will be responsible for the Bonobos and Modcloth businesses.
This acquisition makes sense for both parties. Walmart will expand its digital footprint while expanding its customer base. Moreover, it acquires a brand known to deliver an excellent customer experience, which is what today’s consumer expects. On the other hand, Bonobos gains access to capital and supply chain/logistics expertise, which will help it scale its business. Keep in mind that for this acquisition to be successful, the existing Walmart culture cannot be fully imposed on the Bonobos model.
In the short-term, Bonobos may lose some core customer’s that do not approve of the association with Walmart. In the medium to long-term this will probably be outweighed by the growth Bonobos will experience if managed properly.
Just the Beginning
It is uncanny that the Bonobos acquisition announcement last week was made on the same day Amazon announced its purchase of Whole Foods for $13.7B USD. As Walmart makes moves more towards digital, Amazon is migrating more towards brick and mortar (a hot topic on the Brick & Data Podcast I co-host weekly). This should come as no surprise. The acquisition of Bonobos is not the end game, but just one more strategic step for Walmart in the game of retail survival.