Some more consolidation in the world of online fashion and e-commerce. Today Walmart announced 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. Today’s news confirms reports on the acquisition from us and others earlier this week.
Earlier reports said Jet.com, a Walmart subsidiary, led the acquisition. Walmart’s statement doesn’t note this fact, but a note from Susan Koger, ModCloth’s co-founder, does mention Jet.com: “I am excited to announce that we are joining the Jet .com and Walmart family,” she 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 its other e-commerce sites. In addition, ModCloth CEO Matthew Kaness, his executive team and ModCloth’s more than 300 employees will continue to be based in San Francisco, Los Angeles and Pittsburgh, and will join Walmart’s U.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 ($70 million) and Moosejaw ($51 million).
As we noted in our earlier reporting, more than one source very close to the deal told us that it’s no more than between $50 million and $75 million, and Walmart’s “ballpark” figure appears to confirm this.
This is not a great outcome for the startup, which had raised $78 million from investors that included Norwest Venture Partners, Floodgate, First Round and Accel Partners. Notably, Norwest and Accel also backed Jet.com, which Walmart acquired in 2016 for $3 billion.
As with its Jet.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. It’s also a deeper move into apparel.
Other purchases in that vein have 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 to size diversity.
Walmart’s 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 world’s biggest retailer, but online-only Amazon is catching up, and so this is driving Walmart to push harder into digital, both to follow today’s shopping habits as well as to help secure customers in the future. There’s 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 ModCloth’s existing youthful clientele will stay with the brand as it joins a much bigger parent, one that some of ModCloth’s younger female customers openly 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 hipster designs and a size-inclusive approach 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, here and here); the replacement of 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.
We’ve heard this tune many times before, but building a big and sustainable e-commerce business is hard. And so 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 ModCloth’s online storefront, the company has been trying out a physical retail model with temporary shops in Los Angeles and 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 the deal will help current ModCloth designers reach a larger customer base, through Jet.com and Walmart’s other e-commerce sites.
“ModCloth’s 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 statement read. “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.