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Over the past few years, Walmart has been unfurling its ties to the host of e-commerce and direct-to-consumer companies it acquired several years ago.
Between 2016 and 2018, the mass retailer moved heavily into the e-commerce space by acquiring ModCloth, Bare Necessities, Jet, Shoes.com, Moosejaw, Bonobos and Eloquii.
When Walmart bought the plus-size brand Eloquii in 2018, it was Bonobos founder Andy Dunn who was leading the retail giant's DTC companies as its senior vice president of digital consumer brands. At the time, Dunn noted how key DTC growth was for the retailer.
“As the retail landscape evolves at light speed, we remain firm in our belief that it’s not just about selling brands, it’s also about building brands and customer relationships,” Dunn said in a statement shared with Retail Dive at the time. “As such, we are laser-focused on developing a portfolio of direct to consumer brands with a unique assortment you can’t find anywhere else.”
But over the course of just two months this year, Walmart entered into agreements to sell two direct-to-consumer apparel brands – Eloquii and Bonobos – and the outdoors retailer Moosejaw.
Plus-size apparel company FullBeauty Brands is taking Eloquii for an undisclosed amount, while WHP Global and Express Inc. agreed to buy menswear brand Bonobos for $75 million – a stark drop from the $310 million Walmart purchased it for.
At first glance, the sales may seem like a sudden departure from Walmart’s direct-to-consumer investments. But the retailer has been steadily shifting its focus toward its core business for years, and divesting these companies is just the latest pivot. Here's what it means for Walmart, and the brands it sold.
The bigger picture
Taking a step back, Walmart has been steadily offloading its e-commerce and DTC endeavors over the course of several years as opposed to just the last few months.
Prior to the sale of Moosejaw, Eloquii and Bonobos, Walmart had already sold off several of the companies acquired during its e-commerce push.
Walmart in 2019 inked a deal to sell vintage-inspired online apparel and accessories store ModCloth to Go Global Retail about two years after the mass merchant purchased it. Walmart acquired it through Jet, an online retailer that Walmart bought in 2016 for $3 billion. Jet has since been discontinued, though Walmart noted at the time the company was “critical to accelerating our omni strategy.”
Shoes.com, which Walmart bought in 2017, was sold to CriticalPoint Capital in 2020. At the same time, Walmart announced it agreed to sell lingerie brand Bare Necessities, which it acquired in 2018, to Delta Galil Industries.
But Walmart’s steady divestment of its non-core retail businesses extends beyond e-commerce and DTC, according to Senior Managing Director Joe Feldman at Telsey Advisory Group.
“If you go back a few years, they exited their Japanese business, they exited the U.K. business, they’ve exited Brazil,” Feldman told Retail Dive. “They got out of countries where they just weren't as profitable as they would like, or they weren’t as effective. I think this is part of that process of streamlining to getting back to where they can be most impactful and most efficient and profitable.”
The mass retailer sold a majority stake in Japan’s Seiyu supermarket chain in 2020 for more than $1 billion and announced a deal to sell its Asda U.K. business for about $8.8 billion the same year. A couple of years earlier, it sold a majority of its Brazil unit to a private equity firm.
“I think that they found that third-party brands can be just as effective and profitable and maybe more profitable than owning the brand themselves.”
Joe Feldman
Senior Managing Director at Telsey Advisory Group
Whether Eloquii, Moosejaw and Bonobos were profitable under Walmart is unknown. The retailer has had little to say about the brands on earnings calls over the past few years and a Walmart corporate spokeswoman told Retail Dive that the company does not break down sales or profits of its categories or businesses.
Regardless, the acquired brands were likely never expected to be a large part of Walmart’s business, according to Feldman, and therefore their sale will likely not move the needle much.
But what Walmart learned from these brands may have contributed to its e-commerce and marketplace growth. On a Q4 earnings call in 2018, CEO Doug McMillon noted the company was focused on expanding its apparel business, and ModCloth and Bonobos could be leveraged to build its assortment. Now that it's selling them, Walmart says it did just that.
“These acquisitions contributed to accelerating our broader assortment strategy with the addition of new brands, more items and expertise in specialty categories ... The partnerships have been mutually beneficial,” Walmart’s spokeswoman told Retail Dive via email. “The acquired brands played an important role in our assortment expansion and expertise in specialty categories, while Walmart helped them drive online growth and expand their retail footprint through our scale and customer reach.”
In McMillon’s annual letter to shareholders in February, the executive said e-commerce sales reached $82 billion and currently make up 14% of Walmart’s total sales.
And although Walmart is selling Bonobos at a lower price than it initially invested, the business may be well-positioned to take such risks, according to Feldman.
“I think that they found that third-party brands can be just as effective and profitable and maybe more profitable than owning the brand themselves,” Feldman said. “Not being afraid to fail is clearly a part of the Walmart culture these days and I think that that's what helps make them a stronger retailer.”
While Walmart has divested from many digital-first brands and e-commerce endeavors, its track record shows it still views e-commerce and technology as growth points.
Investing ‘where Walmart can be Walmart’
Demonstrating the company’s shifted focus, Walmart’s mentions of “tech” and “fulfillment and delivery” on earnings calls more than doubled from Q1 2019 to Q1 2021, according to data from CB Insights.
The newer strategy can also be seen through its more recent investment activity. Rather than acquiring DTC apparel brands, Walmart is buying retail tech companies.
Walmart acquired two robotic fulfillment companies during 2022 — Symbotic and Alert Innovation — and invested in or partnered with nine other companies working on fulfillment technology, according to CB Insights. The retailer also invested in three companies and acquired two in the last-mile delivery space since 2020, which includes its work with drone delivery company DroneUp. Furthermore, Walmart has begun eyeing India’s commerce space with PhonePe and Flipkart, and has used technology from the acquisitions of Zeekit and MemoMi since 2021 for virtual try-on.
“I think it's easy to see they continue to invest in e-commerce,” CB Insights Principal Analyst Laura Kennedy told Retail Dive. “They continue to invest in the parts of e-commerce where Walmart can be Walmart ... something that really shows up in the data that we track is how they've invested and acquired and formed partnerships with a lot of tech companies that ultimately point to the fact that they're selling tech services to other retailers.”
Many of Walmart’s acquisitions and investments have helped it build its B2B services, according to CB Insights, such as its white-label ground delivery service Walmart GoLocal, its marketplace seller program Walmart Fulfillment Services and fulfillment management service Store Assist.
Automation has also been a key focus for Walmart, which in April spoke at large about the topic during its annual investors meeting. Although the retailer has recently enacted layoffs across its e-commerce facilities, Walmart said 65% of stores will have automation capabilities and 55% of fulfillment center volume will move through automated facilities within three years.
“A very large part of their strategy today is on leveraging technology to be more efficient,” Feldman said. “Virtually the entire investor conference that Walmart posted a couple of weeks ago in Tampa was all about automating the warehouses ... And there's this flywheel that comes from that because then you can take those savings and reinvest it into lower prices and lower prices can mean people spend more.”
However, automation and robotics, in general, can be an expensive endeavor, Kennedy added.
“Automating fulfillment is a capital-intensive investment,” Kennedy said. “You're still putting in robots and all that. But the fact that [Walmart is] scaling it is significant to me.”
The retailer had been an early partner with Alert Innovation in 2016, but is just more recently working to expand these capabilities.
“They certainly took their time. They're not putting it everywhere, which tells you that maybe it's not a one-size-fits-all or fixes everything that everybody might think,” Kennedy added. However, the company seems to see a future in the automation space and is thinking carefully about its return on investment as it moves forward.
But as Walmart shifts its focus, a fresh start is on the horizon for Eloquii and Bonobos.
Where Eloquii and Bonobos are headed
The new owners of Eloquii and Bonobos are more centered around the apparel industry overall, with the brands likely to account for a larger part of their respective businesses than they did at Walmart.
“We always had Eloquii on a list of brands we would be interested in and had a lot of respect for the brand,” FullBeauty Brands CEO Jim Fogarty told Retail Dive. “If you look at what they’re all about, it’s a similar basic mission to what we’re about ... They, like our brands, are not only just bringing [inclusive] sizes, but they also obsess about fit and our teams do as well.”
FullBeauty Brands went through a bankruptcy over the course of 24 hours in 2019. Its restructuring plan gave the company’s ownership to a group of lenders and cut down $900 million in debt.
Since then, the company has been refocused on growth. It won a $41 million bid to acquire plus-size apparel brand Catherines in 2020, adding to its portfolio that also includes Woman Within, KingSize and Swimsuits For All. And it has addressed some of the challenges that led it to bankruptcy in the first place, Fogarty said.
“The gross margins and the inventory weren’t being managed as well as [we] needed to,” Fogarty said of the business prior to bankruptcy reorganization. “So we sort of did a reset along with the merchandise assortments … And just make better, smarter bets and inventory buys.”
For much of FullBeauty Brands’ portfolio, its target customer skews toward the Gen X and baby boomer-aged demographic, Fogarty added. Eloquii brings a younger demographic to the table that FullBeauty Brands is hoping to target more.
Eloquii will become the anchor tenant in a digital mall run by FullBeauty Brands, with Swimsuits For All and June+Vie joining alongside.
FullBeauty Brands is very focused on online channels, where it says there is still room for growth, as it allows for a stronger free cash flow compared to brick-and-mortar retail. However, physical presence isn’t out of the question, as Eloquii has operated stores in the past.
“I think the team at Eloquii believes that has potential for them, so we're open to talking about all of that,” Fogarty said. “There are lots of direct-to-consumer folks that have, as they look to find more paths to market, gone and opened brick and mortar. It's not in our near-term horizon, but I suppose never say never.”
While the plus-size company mostly focuses on direct-to-consumer channels, many of its brands – including Catherines and Eloquii – do sell select styles through some marketplaces, such as Walmart’s.
As for Bonobos, going to live under WHP Global and Express may seem like a welcome change, given Express’ history in apparel. Express has bet big on growing its DTC business by launching its UpWest brand in 2019 and looking for growth through expanding its physical footprint.
At the time the acquisition was announced, Express Inc. CEO Tim Baxter said in a statement that “Bonobos is delivering double-digit sales growth and we plan to continue that momentum while also realizing operating synergies and other economies of scale.”
Under Walmart, Bonobos experienced workforce cuts and ended up stepping away from its roots by selling a subbrand through Walmart.
But its new parent companies are not without issues. Express’ sales have declined as of late and it received a delisting warning notice from the New York Stock Exchange in April.
Express is shelling out $25 million for Bonobos' operating assets and assumed liabilities, while WHP Global is paying the remaining $50 million for the Bonobos brand. Toys R Us owner WHP Global took a stake in Express in 2022 for $260 million, forming a strategic partnership between the companies. WHP Global’s portfolio also includes Anne Klein, Lotto and Isaac Mizrahi. In March, WHP Global received a $375 million investment from Ares Management.
Both WHP Global and Express declined to comment further on the acquisition.
While Bonobos is being sold at a significantly lower price than what Walmart acquired it for years ago, that lower valuation is consistent with how others in the DTC space are faring.
CB Insights data found that as of April 18, the market caps of DTC darlings Warby Parker and Allbirds have fallen 72% and 91%, respectively, since their initial public offerings.
Global venture capital funding during 2022 was down 35% compared to the year before while VC deal activity in retail within the U.S. decreased 36%, all marking a stark change in capital for an industry that is dealing with macroeconomic pressures.
via https://www.aiupnow.com
Dani James, Khareem Sudlow
