What An Acquisition Of Bonobos Would Signal About Wal-Mart’s Strategy
Wal-Mart (NYSE:WMT) is reportedly planning to buy men’s clothing e-commerce company Bonobos for about $300 million. Although the exact details of the potential deal are not available, it is believed to be in advanced stages of talks. This deal could mark a major step for Wal-Mart – as the company essentially focuses on everyday low prices (EDLP), with largely price-conscious customer base – whereas Bonobos is viewed as more of an upscale fashion business.
This deal, if it happens, would be Wal-Mart’s fourth acquisition within an year, which should provide the company with a diverse product portfolio, along with increased digital marketing expertise, eventually helping it face growing competition from internet retailers such as Amazon (NASDAQ:AMZN). Bonobos started by selling pants to men and swiftly expanded its collection to shorts and shirts. While the brand started as an online-only retailer, it recently began to incorporate some brick-and-mortar stores into its strategy. Bonobos is known for providing customers with an ideal fit, which usually leads to higher customer satisfaction. The company is reported to be profitable even with its free shipping and convenient returns policy, which would definitely be beneficial for Wal-Mart. To add to that, the retail giant could also increase its reach to a younger demographic with this potential acquisition, given that the average age of a Wal-Mart shopper is between 45-54.
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Upping Its E-Commerce Game
Wal-Mart is trying to transition its business model to optimize its e-commerce capabilities in response to fierce competition. The company introduced free two-day shipping to all its customers on orders of $35 or more in a move to better compete with Amazon. In addition, the company also recently added discounts for in-store pickup for online orders.
Wal-Mart is focused on driving strong growth by opening fewer new stores overall, particularly in the U.S., while prioritizing comparable sales and accelerating e-commerce growth, including the third-party marketplace. As a result, the company saw strong growth in its e-commerce business with GMV and sales growth of 36% and 29%, respectively, in the fiscal fourth quarter.
As online sales growth continues to outpace the total retail market, retailers need to focus on enhancing their online platforms to meet the increasing demand. This potential Bonobos acquisition appears to be in line with Wal-Mart’s strategy to expand its online business. Going forward, Wal-Mart aims to garner a greater share of total U.S. online sales, which are expected to reach $523 billion by 2020.
Catering To High-Income Urban Customers
In order to drive strong e-commerce growth, Wal-Mart is likely to try to appeal more to shoppers with higher incomes, while the company has historically appealed to the working and middle class due to its low prices. At the brick-and-mortar level, the company has already spent around $1 billion to improve its employee training processes and began cleaning up its stores to make them more attractive to affluent shoppers. On the online side, the company is acquiring companies with diverse product lines, such as women’s online retailer ModCloth, outdoor gear seller MooseJaw and online shoe site ShoeBuy.
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