Amazon buys Whole Foods in ‘game changer’ deal, Wal-Mart acquires another specialty retailer

Two U.S. retail titans on Friday (June 16) made big moves into each others business, with Wal-Mart Stores buying exclusive apparel seller Bonobos for $310 million and Amazon entering the grocery business with a $13.7 billion acquisition of Whole Foods.

Wal-Mart has made no secret it’s shopping for retail category expertise in the form of online specialty acquisitions like the recently announced deals with Jet.com, Moosejaw, ShoeBuy and ModCloth. The $3.3 billion acquisition of Jet.com by Wal-Mart in August 2016 was the beginning of the push by the Bentonville-based retailer to aggressively move into the online space.

Bonobos, launched in 2007, certainly fits in Wal-Mart’s specialty strategy. The online retailer sells items that range in price between $100 and $1,000, significantly higher than apparel sold in Walmart U.S. stores. Bonobos has 35 “Guideshops” in the U.S., and in 2012 Bonobos partnered with Nordstrom, bringing Bonobos apparel into all 118 Nordstrom stores and to Nordstrom.com.

Following the closing, which is subject to the standard regulatory approvals, Bonobos founder and CEO Andy Dunn will report to Marc Lore, president and CEO of Walmart U.S. eCommerce. Dunn will manage the company’s collection of “digitally-native vertical brands,” according to Wal-Mart. Bonobos brands also will be sold on Jet.com.

“We’re seeing momentum in the business as we expand our value proposition with customers and it’s incredible to see how fast we’re moving,” said Lore, who was CEO of Jet.com when it was acquired by Wal-Mart. “Adding innovators like Andy will continue to help us shape the future of Walmart, and the future of retail. I’m thrilled to welcome Andy and the entire Bonobos team. They’ve created an amazing product and customer experience, and that will not change. In fact, Andy will be a great influence on the company, especially in leading our collection of exclusive brands offered online.”

Oliver Chen, analyst at Cowen & Co., said Bonobos offers a brand-loyal customer base, premium price points, fresh merchandising talent and expertise in a differentiated niche of fashion. In a note to investors Chen said a deal to acquire Bonobos gives Wal-Mart an opportunity to enter a high-margin specialtycategory and help it better compete with Amazon in the apparel setting.

AMAZON ENTERS THE GROCERY BUSINESS
Officials with Seattle-based Amazon had hinted about making more inroads into the grocery business. The hints became a big reality with Friday’s announcement that the world’s largest online retailer would buy Whole Foods Market for $42 per share in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.

“This is a game changer,” CNBC host Jim Kramer said Friday after the news broke. “This is it. This is what everybody thought could happen. They will now dominate food within the next two years.”

He said the Amazon move to acquire Whole Foods “is a threat to everybody who sells food.”

The $13.7 billion is roughly a 27% premium for Whole Foods based on Thursday’s closing price of Whole Foods’ shares.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Jeff Bezos, Amazon founder and CEO, said in a statement. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

Whole Foods Market will continue to operate stores under the Whole Foods Market brand. John Mackey will remain as CEO of Whole Foods Market and the company will remain based in Austin, Texas.

“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” Mackey said in the statement.

The deal is subject to approval by Whole Foods’ shareholders and other regulatory approvals. Barring any problems, the deal is expected to close in the second half of 2017.

Wal-Mart shares (NYSE: WMT) was trading more than 6% lower in early morning trading. The share price closed Thursday at $78.91. During the past 52 weeks the share price has ranged between $80.47 and $65.28.

Amazon shares (NASDAQ: AMZN) was trading up more 3% in early Friday trading. The share price closed Thursday at $964.17. During the past 52 weeks the share price has ranged between $999.48 and $982.00.

Talk Business & Politics will update this story as more comments and analysis are received.