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NEW YORK, United States — For Marc Lore, there is no time to waste in what is shaping up to be an epic battle for mass market e-commerce dominance.
“Fast forward, with mass merchants online — that’s Walmart, Jet, Target, Amazon — there’s going to be a time when there’s parity in assortment, where everybody carries everything,” the founder of Jet.com and chief executive of Walmart’s US e-commerce division told BoF on Friday. “At some point, the game is going to switch to who has product that others don’t have.”
In anticipation of that shift, Walmart has announced that the company will acquire digital-first menswear brand Bonobos for $310 million. Bonobos founder Andy Dunn will report directly to Lore, who has led Walmart's e-commerce business since the big-box behemoth acquired Jet.com for $3.3 billion in September 2016.
The news came on the same day that Amazon announced its own acquisition of premium grocery store chain Whole Foods for $13.7 billion. The timing is likely more than coincidental, as Walmart and Amazon continue to jockey for e-commerce dominance in two of the fastest growing categories online — apparel and groceries — through very different strategies.
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In the 9 months since Lore joined Walmart, he has pursued an aggressive e-commerce catch-up strategy that resulted in a 63 percent increase year-over-year in e-commerce sales in the most recent quarter ending April 30, versus a 29 percent jump in the previous quarter. Walmart.com has so far driven most of that growth; it started offering free two-day shipping without a membership fee at the beginning of the year.
However, that hasn’t stopped Lore from buying smaller e-commerce players in order to amplify that growth. Friday’s announcement marks his fourth acquisition of a digitally native vertical company in seven months. In March 2017, Walmart acquired ModCloth, an online women’s retailer that has shifted its inventory focus to private label, for an estimated $40 to $60 million. In February 2017, outdoor retailer Moosejaw was bought for approximately $51 million. ShoeBuy, which sells brands such as Cole Haan, Toms and Diesel, was added to the stable for $70 million in December 2016. And Jet.com came to Walmart having already acquired Hayneedle, a home goods retailer, for a reported $90 million in March 2016.
With the addition of Bonobos, Lore is setting up two distinct portfolios of acquisitions: Multi-brand specialty retailers (Moosejaw, ShoeBuy and Hayneedle), whose respective leaders now oversee their respective categories across Walmart’s total e-commerce business, and private label brands Bonobos and Modcloth, both of which will now be overseen by Dunn, though Modcloth chief executive Matt Kaness will remain in his position. There are no plans to sell Bonobos or ModCloth products through Jet.com or Walmart.com at this time, and Dunn was adamant that both brands will remain autonomous.
“We’re going to maintain the magic and the culture of Bonobos,” Dunn said. “Now we are grateful to say [we] jump onto a much broader stage.”
“We see an opportunity here to own proprietary brands that resonate with the future of shoppers — millennials,” added Lore, acknowledging the “attractive margins” of owned brands. Walmart acquired the multi-brand retailers, on the other hand, to quickly expand the company’s assortment.
Bonobos was founded in 2007 by Dunn and Brian Spaly — who left the business two years later — to sell well-fitting pants online. It soon became one of the leaders in vertically integrated fashion retail, raising $127 million and expanding into the major menswear categories. Customer service — associates are called "ninjas" — is a priority. In 2011, it opened the first of 35 "guideshops," physical stores tied to online inventory where shoppers can try on samples and place e-commerce orders. (Modcloth's first Austin store, opened in November, operates on the same model.) In 2012, Dunn partnered with Nordstrom to bring the brand to over 100 stores.
Reuters reported in November that Bonobos, which has an estimated yearly revenue of $100 million to $150 million, was seeking to raise an additional $100 million, but nothing materialised. After having spoken publicly about aiming for an IPO for two years, Dunn then told CNBC that an acquisition was the "gold standard" for e-commerce companies.
“Sometimes the world turns out different that you expect,” Dunn said of his decision to partner with Walmart. “The chance to build Bonobos in a scalable and safe home, and also take on the broader opportunity starting with Modcloth, was a dream come true for me.”
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This is not the first, nor likely the last, acquisition Lore and Walmart will announce this year. The structure of the company’s new private-label division could also engender the launch of new brands. “I’ve made some mistakes in the past trying to make some new brands inside of Bonobos, where we don’t have the balance sheet and the resources to start to make new stuff,” Dunn said, referring to the women’s line AYR, which Bonobos launched in 2014 but spun off into a standalone company in 2015. But Lore said Dunn’s focus is on the existing businesses for now.
As for whether Dunn and his team will work with Walmart's new Silicon Valley tech incubator Store No. 8 — which was established in March with the intention to create radically innovative retail businesses — Lore and Dunn made no indication that there would be any collaboration anytime soon.
“This is a much longer-term strategy and vision than merely just buying a menswear brand,” said Lore. “Andy and I, we are going to be really focused on showing what we can do.”
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