Some more consolidation in the world of online fashion and e-commerce. Today Walmart announced that it has acquired ModCloth, a womenswear retailer that focuses on a younger, progressive demographic and a healthier range of sizes beyond the too-often-emphasized tall, rail-thin look. Todays newsconfirms reports on the acquisitionfrom us and othersearlier this week.
Earlier reports said Jet.com, a Walmart subsidiary, ledthe acquisition. Walmarts statement doesnt note this fact, buta note from Susan Koger, ModCloths co-founder, does mention Jet.com: I am excited to announce that we are joining the Jet.com and Walmart family, said writes in a blog post.
Walmart and Koger both note that the ModCloth team will continue to operate its site and store as a standalone and complementary brand to itsother e-commerce sites. In addition, ModCloth CEO Matthew Kaness, his executive team, and ModCloths over 300 employees will continue to be based in San Francisco, Los Angeles and Pittsburgh, and will join WalmartsU.S. e-commerce retail organization, the company said.
The terms of the deal have not been disclosed, beyond Walmart telling us it was an all-cash acquisition that was along the same lines as its two previous deals for ShoeBuy ($70m) and Moosejaw ($51m).
As we noted in our earlier reporting, more than one source very close to the deal told us that its no more than between $50 million and $75 million, and Walmarts ballpark figure appears to confirm this.
This is not a great outcome for the startup, which had raised $78 millionfrom investors that includedNorwest Venture Partners, Floodgate, First Round, and Accel Partners. Notably, Norwest and Accel had also backed Jet.com, which Walmart acquired in 2016 for $3 billion.
As with itsJet.com acquisition, the strategy for Walmart is to buy into more online brands that will help it expand its reach into new demographics. In this case, it wants to better target a younger and hipper clientele that might not have previously shopped with Walmart before, and also a deeper move into apparel.
Other purchases in that veinhave included outdoor retailer Moosejaw for $51 million in February 2017.
Walmart was attracted to ModCloth for several reasons, it says, including its strong social media presence, highly engaged community, and the way its brand has developed a reputation for inclusiveness ranging from body positivity to lifestyle inclusiveness tosize diversity.
Walmarts Jet.com, originally established as a soup-to-nuts Amazon competitor, has also made acquisitions to expand in lifestyle and fashion: it acquired home and lifestyle online store Hayneedle in March 2016, and Zappos-style shoe retailer Shoebuy for $70 million from IAC earlier this year.
Walmart today is the worlds biggest retailer, but online-only Amazon is catching up, and so this is driving Walmart to push harder into digital, both to follow todays shopping habits as well as to help secure customers in the future. Theres also the presence of Target, another huge physical retailer that has built a big business in apparel.
Within that, fashion and apparel have become key battlegrounds for the two rivals. Amazon itself has been aggressively expanding in fashion, looking to buy a number of companies and also build out its own operations organically.
One big question will be whether ModCloths existing youthful clientele will stay with the brandas it joins a much bigger parent, one that some of ModClothsyounger female customersopenly reject as consumers, or if they will migrate elsewhere.
As we wrote earlier this week, the acquisition comes after a hard period for ModCloth. Originally founded in a dorm room in 2002 by Susan and Eric Koger, the company saw early success in a formula that emphasized hipsterdesigns anda size-inclusiveapproach to female fashion.
And with that, it saw funding from a strong list of VCs that wanted to tap deeper into the new wave of online stores and smart analytics to target and get business from new categories of consumers.
But growth while at times profitable began to slow, and the company saw multiple rounds of layoffs (some reported here,hereand here); the replacementof Eric Kroger as CEO by Matthew Kaness, an alum from Urban Outfitters, along with a number of other executive changes; and some striking examples of low staff morale, judging by some of the posts on Glassdoor.
Weve heard this tune many times before, but building a big and sustainablee-commerce business is hard. Andso that has driven a lot of startups in the area either to be gobbled up by bigger players like Walmart and Amazon (which has also made a ton of acquisitions of smaller online plays), or to fall by the wayside.
Just yesterday, it was announced that True&Co., a lingerie startup and online retailer, was acquired by fashion conglomerate PVH, owner of Calvin Klein, Tommy Hilfiger and many other brands.
In addition to the ModClothsonline storefront, the company has been trying out a physical retail model with temporary shops in Los Angeles, San Francisco and a permanent shop in Austin.
This offline to online component may have intrigued Walmart as well, given its Moosejaw purchase also included a retailer that had its foot in both worlds.
Walmart touted how thedeal will help current ModCloth designers reach a larger customer base, through Jet.com and Walmarts other e-commerce sites.
ModCloths catalog offers thousands of choices in clothing and accessories, including highly differentiated, exclusive styles and an extended range of sizes that appeal to a broad demographic of women, the Walmart statementread. The compelling styling, branding and content currently available online, along with deep industry relationships and expertise, will help us further enhance our overall customer experience.
Walmart, which has a market cap of $216 billion, was trading down slightly as the market opened today.