For Walmart Inc., the key to keeping and growing market share may lie in the expansion of its third-party seller network—including apparel.
That could be one way to include a wider range of apparel options, especially online, without having to actually acquire a brand.
A report from Vox earlier this month said the discounter had contemplated selling both ModCloth and Bonobos, but ended up deciding to keep the Bonobos business. Both were acquired in 2017 and target the millennial consumer. They also are sold on the Jet.com platform. And both apparel brands, along with women’s plus-size brand Eloquii, which was acquired in October 2018, are all said to be unprofitable. Moreover, the ModCloth sale report surfaced following word that the $3.3 billion acquisition of the jet.com operation in 2016 would be folded into the discounter’s e-commerce operations, and that Walmart’s online business in the U.S. could lose as much as $1 billion-plus this year.
Walmart already has an online platform that it wants to grow and can use as a marketplace. The discounter’s big advantage is its large network of stores across the U.S. and overseas. Third-party sales on Walmart’s platform, because it can collect “agency” fees for the use of the “marketplace,” would also create another revenue-generating component for the overall business.
And, more importantly, Walmart already is thinking along these lines, including how to capture synergies with its brick-and-mortar doors.
In October, Walmart disclosed a partnership with Advance Auto Parts Inc. to create an online specialty automotive store on its site. And while that would complement the assortment already available at Walmart’s Auto Centers, even better for the after-market auto parts supplier is that it gets space in Walmart’s doors where it can curate merchandise to grab the attention of consumers walking the aisle.
But while the partnership can serve as the model for other categories, can it really work for fashion?
“I don’t see why not,” Charlie O’Shea, lead retail credit analyst at Moody’s Investors Service, said in a phone interview. The fact that Advance can curate product for Walmart’s stores is a big deal, and could very well serve as the framework for apparel and accessories, according to the analyst. That aspect of the model–having a presence within Walmart’s store base–”is a big selling point for anyone considering a third-party relationship,” the analyst said.
O’Shea believes the mass discounter’s brick-and-mortar presence gives it a huge advantage over Amazon. More than just being able to leverage its “massive distribution” and offer space in its stores, Walmart also isn’t likely to “develop private label product that could end up competing with a third-party seller,” he said.
Having access to Walmart’s brick-and-mortar locations for a company’s products in those stores, according to O’Shea, “is the holy grail for [companies]. Walmart has over 5,300 stores just in the U.S.” That far-reaching store base also provides a lot of flexibility in how the allocated space might be used, such as a curated outlet or “clearance” for new goods, he reasoned.
Walmart has already shown its interest in growing its apparel footprint. Even before the Advance Auto deal was inked, Walmart last year launched an online Lord & Taylor flagship store at walmart.com for women’s apparel. The one big difference between the two partnerships is that Lord & Taylor’s presence seems limited to online.
Terms of the Lord & Taylor partnership were not disclosed, but a quick view of the online store on Friday shows the fashion retailer is responsible for the sale and shipment of orders. The site also shows the presence of other brands, like apparel from Alex Evenings and Vince Camuto, as well as evening footwear and packable lightweight outerwear from Badgley Mischka.
While O’Shea declined to comment on which assets Walmart might want to dispose of, he did note that recent acquisitions like ModCloth and Bonobos were “small.” O’Shea, as well as other industry observers, seem to have doubt in the sale rumors.
Walmart, O’Shea said, has a history of small tactical investments–such as home improvement center Save-Co and crafting concept Helen’s Arts and Crafts– that it uses as field tests that don’t always pan out. “Walmart is a big apparel retailer, and I don’t see that changing,” he said.
As for the speculated $1 billion-plus loss for the U.S. e-commerce business, O’Shea said, “Who cares? It doesn’t matter.” With omnichannel capability, it no longer matters where the sale gets made. And the analyst reasoned that one should expect online profitability to get impacted by continued investments in digital. “The key is to focus on the overall profitability [of the retailer],” O’Shea said.
Brian Sozzi, a former research analyst and portfolio manager and now a co-anchor of “The First Trade” at Yahoo Finance, wrote in a recent Yahoo post that the discounter has “no choice but to make these investments if it wants to win over time in both the digital realm and its physical stores.” While he believes the speculated loss might even be far higher, the former analyst also concluded that shredding Walmart for “investing in the future of shopping borders [on the] absurd.”
For now, Walmart seems focused on its store footprint where grocery is a key component of the business. Since April, the discounter has disclosed initiatives that include a no fee next-day shipping option and an in-home delivery service it will test in three U.S. markets. Both are focused on grocery purchases, but over time could evolve to include other purchases, perhaps even apparel. Some see it as a reaction by Walmart to compete, and even catch-up, with Amazon.
“Don’t get caught up with that,” cautioned O’Shea cautioned, who’s emphatic about how Walmart is not competing with Amazon. Each has different models, he said, with Walmart obviously more closely tied to brick-and-mortar, and Amazon. Moreover, O’Shea is convinced Amazon is the one playing catch-up to Walmart.
That’s also the thinking in the industry since Amazon completed its $13.7 billion acquisition of Whole Foods in August 2017, first as a foray into the grocery sector and then as a possible way to use its stores for buy online and pickup in-store.