Wal-Mart eyes trendy fashion startup ModCloth as next acquisition

by Kim Souza (ksouza@talkbusiness.net) 459 views 

Wal-Mart Stores, through its online subsidiary Jet.com, is reportedly about to close a deal for the trendy fashion startup ModCloth. The San Francisco Bay area company would mark Wal-Mart’s third acquisition in less than three months.

Walmart.com has not yet confirmed the deal which is slated for a Friday (March 17) announcement, according to fashion Blog Jezebel that reported ModCloth employees were told of the deal Wednesday (March 15).

The deal is likely valued somewhere around $75 million, according to Techcrunch. The e-tailer has struggled to make a profit in recent years. ModCloth has been around for 15 years and has survived on venture capital funding. ModCloth reportedly had apparel sales of $150 million in 2015. Two years ago Matt Kaness of Urban Outfitters joined ModCloth as CEO and began to trial physical stores via pop-up stations before setting a permanent store in Austin, Texas.

News of the pending acquisition spread during the past 24 hours and there has been mixed sentiment on the deal. ModCloth is a trendy fashion retailer with a mantra to offer “Style for All” which includes vintage fashion for women of all sizes. This inclusive mission is a plus for the retail giant who also claims to be in business for everyone. The fashion retailer sells everything from wedding dresses to swimsuits.

Financially it seems Wal-Mart likely got a good deal for the fashion expertise and the retailer will want to maximize the apparel expertise management at ModCloth. Retail executives discussed what this type of acquisition could mean for Wal-Mart in a RetailWire blog posting Thursday (March. 16).

“Smart move by Walmart — buying ModCloth at a discount will add to the company’s growing lineup of e-commerce offerings. Walmart management knows it must diversify. Rather than struggle to find innovation within, it’s easier to acquire it,” noted Max Goldberg, CEO of Goldberg & Associates.

FutureProof Retail President DiDi Chan expects to see more acquisitions and technology plays by Walmart.com and Amazon in a race to brand themselves as the default “one-stop” shopping center for most consumers.

The cultures of ModCloth and Wal-Mart are quite different, but it seems Wal-Mart management is content to let the startups operate as they wish while also getting access to deep category experience that perhaps it can use for own legacy operations.

The ModCloth customer is most likely an urban Millennial who wants vintage clothing at value regardless of their size. ModCloth has even dabbled with some private label efforts to try and grow profits in the past few years and most recently worked a deal with Wrangler. Most think ModCloth is a smart buy for Jet.com who is also largely serving the urban customer. But it’s also a win for Wal-Mart if they can set up some type of shop within a store concept at its stores.

Retail strategist Jasmine Glasheen said Walmart is ensuring their longevity by picking up brands that speak to the next generation.

“Walmart’s success in these acquisitions will be determined by their ability to allow each brand, Moosejaw and ModCloth, to continue the fun, customer-centric and slightly irreverent marketing campaigns that put them on the map,” she added.

Not everyone is happy of the about the deal. Some disgruntled ModCloth fans shared their dislike of the pending deal on the retailer’s Facebook page. ModCloth’s store in Austin posted a “Buy 1 Get 50% off all tops” notice on its Facebook page Thursday. One customer, Kelly Brown Kiver of Oakland, Calif., asked if ModCloth was going to make a comment on its “recent sell-out to the most notoriously anti-employee company in the country?”

Jodi Greig, of Ann Arbor, Mich., replied, “If this is true, I also will not be purchasing from Modcloth anymore. This was hard news, because a large percentage of my wardrobe is from Modcloth, but I have already found a number of alternatives that look fantastic and are not owned by Walmart or other companies that treat their employees like dirt.”

Wal-Mart CEO Doug McMillon recently told Wall Street analysts that the part of the company’s mission is to be a “trusted retailer.” Ethical sourcing, sustainability initiatives, hiring veterans, raising worker pay, expanding training opportunities and responding to disasters are all part of the retailer doing what is right.

Analysts also asked McMillon about the strategy behind the recent acquisitions. He said access to new product assortments was a deciding factor in the recent deals for ShoeBuy and Moosejaw. He said the Jet.com model also draws in consumers from the more upscale urban areas as do the other recent acquisitions.

“We can pick up some of these companies that are great in terms of the assortment and the service they provide, but they don’t have enough money to lose, to go market their brand and scale it,” McMillon told analysts.

Wal-Mart is expected to make the news public on Friday.

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