How will Wal-Mart continue to grow and take on Amazon? Possible Bonobos deal is in the works
Bonobos founder Andy Dunn is rushing toward the fashion front line in Wal-Mart Stores Inc.’s growing war with Amazon. The question is what role he will play should he get there and how he could help the brick-and-mortar mass giant extend its power into the ever-changing and higher-priced fashion scene online.
Sources on Monday confirmed reports that Wal-Mart is in advanced talks to acquire Bonobos, which started as a pants-centric e-tailer and has established itself in the physical world with “guideshops” that carry no inventory. The deal could potentially be worth $300 million.
The transaction is being handled by Wal-Mart’s corporate development team in Bentonville, Ark., and, if it goes through, sources expect Dunn to take on a broader role as the company lays the groundwork for a larger fashion push online. The retailer is already in the midst of an acquisition-fueled growth spurt under Marc Lore, who sold Jet.com to Wal-Mart in a $3.3 billion deal last year and is now president and chief executive officer of its e-commerce operations.
Lore has been given wide latitude to build Wal-Mart’s online business into a viable Amazon competitor. That means bringing new talent and pushing more goods out into the retailer’s online ecosystem.
According to web data service Scrape Hero, Wal-Mart added 600,000 new items to its e-commerce business from December to January. That’s a big jump and gave it 16.9 million stockkeeping units, ranking it as the second-largest online retailer. But there’s a very big gap between first and second place and Wal-Mart’s sku count leaves it with just 4.7 percent of Amazon’s total offering, which in January stood at 356.9 million skus.
So far, Lore has bought ShoeBuy for $70 million, e-tailer Moosejaw for $51 million and the vintage-inspired ModCloth for an undisclosed sum. While those transactions might seem unusual at first glance, people who have studied Lore’s approach at Wal-Mart say they are astute deals for distressed companies that bring in market share and expertise at a good price.
The push in online fashion has Wal-Mart charging into a category that Amazon has long coveted and has sought to gain ground in through deals with major brands such as Levi Strauss & Co., private label programs, influencers and even a live streaming shopping program.
But fashion is just part of the broader battle for market share and online clicks between the two retail behemoths.
Wal-Mart is the revenue winner in the matchup, with a $486 billion top line compared with Amazon’s product sales of $95 billion (which don’t include the full value of third-party sales).
And although Wal-Mart leads in profitability too — its net earnings tallied $13.6 billion last year, far exceeding Amazon’s $2.4 billion — investors are betting heavily on the future growth of e-commerce. That’s a case of being in the right place at the right time that has helped give Amazon a market capitalization of $423 billion, nearly twice the value of all of Wal-Mart’s stock, at $222 billion.
To compete, experts say Wal-Mart needs to bolster its online offering, adding skus and more price points. A larger online presence would help Wal-Mart get more of out of the dollars it spends to draw customers to its shopping platform and also take advantage of its broader infrastructure.
Bonobos sells chinos for $88 and five-pocket dress pants for $118 and could attract new customers to Wal-Mart’s online business, which is still largely focused on lower-priced goods. Wal-Mart has been aggressively trying to expand its web site beyond just the core retailer to become more of a platform offering a wide range of products, from designer handbags to higher-end electronics.
A deal for the brand would mark the biggest transaction in Lore’s buying spree so far.
Bonobos is said at turns to be nearly profitable or marginally in the black with sales of more than $100 million and growing. Its revenues come in through its web site, its guide shops and Nordstrom wholesale accounts.
(Nordstrom along with Accel Partners, Lightspeed Venture Partners and others have pumped $127 million into the company, which like many of its peers was able to raise money at sky-high tech valuations only to have the market reset to the lower price tags typically seen in fashion. Sources said Wal-Mart would likely buy out current investors).
Bonobos started working with Citi last year to raise capital and was said to be looking for a $400 million valuation. The reality seems to be south of that, the reported $300 million or even lower.
“It’s one of the brands in the physical/e-commerce space that’s on the upswing,” said one source familiar with Wal-Mart’s thinking
A tech source noted: “Wal-Mart has a big checkbook, but they’re also good negotiators. I wouldn’t see them doing the transaction without getting [Dunn] or someone from Bonobos to run apparel. He is someone who is very smart and has a lot of experience and would fit the bill pretty well to run an [online] apparel practice, even if it’s just men’s.”
That would be a big change for Dunn, but times are changing in e-commerce.
Dunn made the scene as a fashion-oriented tech entrepreneur and at one point could have been expected to turn his nose up at a deal with Wal-Mart. The same might have been said of Lore, who built one of e-commerce’s most ambitious startups in Jet, but he has now pivoted and is bringing a tech revolution to the Wal-Mart establishment.
Lore is still feeling out his newfound power at Wal-Mart, going up against his old boss Jeff Bezos at Amazon and looking to give people the resources to build an e-commerce powerhouse.
At the Shoptalk conference in Las Vegas last month, Lore said: “We were able to build a lot of trust early on with the [Wal-Mart] ceo Doug McMillon. It was really about empowering people and Doug and the board made a big move I think to empower me and the rest of the team and I think that really got us fired up.”
Lore said Wal-Mart would focus its e-commerce acquisitions on brands that have more curated experiences and that there was big potential in the relatively high margin areas of fashion and accessories.
Asked if the company would consider buying one of the more established e-commerce brands such as Stitch Fix or Rent the Runway, Lore appeared open to the idea: “I definitely would [consider it] if they were prepared to make the bold move of handing over the keys. You’ve got to hand over the keys…. That’s tough to do, but I think it would work.”
Dunn appears ready to do just that.
And even if he does, there’s little sign that Lore is done buying to build at Wal-Mart. And there would seem to still be room in the portfolio for a women’s line to round out the offering.