Walmart eyes fashion upgrade in ModCloth deal

Beyond expanding into more fitness apparel, fashion has been a difficult category for Walmart U.S. in recent years.

That could be changing for the retail giant since its subsidiary Jet.com recently acquired trendy fashion startup ModCloth for an undisclosed amount.

Analysts believe the deal will cost Wal-Mart Stores between $50 million and $75 million, not significant enough to require the retailer to disclose to investors through a filing with the U.S. Securities and Exchange Commission.

It is believed Wal-Mart will return some of the $78 million in capital raised by ModCloth from venture capital groups, according to TechCrunch.

The match between Wal-Mart and ModCloth may seem unlikely to some, but the fashion retailer has struggled in recent years to grow profits, and also brought in a new CEO in 2015 in Matthew Kaness, previously chief strategy officer at Urban Outfitters.

Wal-Mart e-commerce spokesman Ravi Jariwala told Talk Business & Politics that Kaness and ModCloth’s 300 or so employees will continue to be based in San Francisco, Los Angeles and Pittsburgh and join the Walmart U.S. e-commerce retail organization.

Marc Lore, president and CEO of Wal-Mart e-commerce U.S., no doubt saw potential in the trendy online fashion retailer that caters to women largely between the ages of 18-35. Like the company’s recent acquisitions of ShoeBuy and Moosejaw, the customer base is largely urban and perhaps a little more affluent than the typical Wal-Mart core customer. The ModCloth customer base likely aligns pretty well with Jet.com.

ModCloth is largely an online fashion retailer with its own exclusive designs covering many occasions from weddings to swimsuits. The one physical store ModCloth runs is located in Austin, Texas. There Jariwala said customers can schedule 1:1 styling appointments with ModStylists.

The apparel retailer offers thousands of clothing and accessories, including independent designers as well as national brands and private label garments in a full range of sizes promoting diversity and positive body images that has garnered the company a large following on social media.

Jariwala said the ModCloth team will continue to operate its site and store as a standalone and complementary brand to Wal-Mart’s e-commerce sites.

“The ModCloth team will bring its significant experience and unique talents to our U.S. e-commerce efforts and will further strengthen the collective capabilities of the overall team,” Jariwala said. “Apparel and accessories is the number one category for digital commerce, according to comScore, and we gain the experience of a well-recognized specialty apparel e-commerce brand that’s trusted by millions of millennial women.

“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,” he added.

Retail insider Carol Spieckerman said ModCloth is a unique acquisition for Wal-Mart on a couple of fronts. Spieckerman is the CEO of Bentonville-based Spieckerman Retail.

“First off, it positions itself as a community, not just as a place to shop, and all of the styles are unique to Modcloth,” she told Talk Business & Politics. “In other words, ModCloth, unlike Moosejaw and ShoeBuy, isn’t a purveyor of national brands — it is the brand. ModCloth is a true niche play that allows Walmart to continue with its fairly conservative and volume-oriented apparel strategy in its stores, while reaching digital [and on a limited basis, physical] tentacles into other waters.”

She said the ModCloth model removes the need to assess “fit” because Wal-Mart is not overtaking ModCloth or attempting to integrate it into its stores, though that could be a possibility in the future.

“For the short term, I wouldn’t be surprised to find ModCloth items on Jet.com and eventually on Walmart.com,” she said. “I don’t expect physical scale [building lots of ModCloth stores] to be high on the agenda for now. Through its growing portfolio of digital-forward properties, Wal-Mart is building digital scale and increasing its search relevance in more categories and with more brands. Walmart knows better than to attempt to ‘Walmart-ize’ these new properties. The value lies in their distinction.”