How Bonobos Fits At Wal-Mart

After much speculation, Wal-Mart (NYSE:WMT) has reached a deal to acquire Bonobos for $310 million in cash. This deal could mark a major step for Wal-Mart – as the company largely focuses on low prices, with a fairly price-conscious customer base, whereas Bonobos is viewed as more of an upscale fashion business, which has not been Wal-Mart’s strong suit historically. However, this acquisition fits with the company’s ongoing digital innovation strategy.

Bonobos initially 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, as well as a seamless and convenient experience, which has led to very high customer satisfaction. The company has a very strong brand, and should help Wal-Mart make further inroads into the fashion business, as well as helping its e-commerce efforts. However, there is a risk that some of Bonobos’ high-end customer base could be turned off by its association with Wal-Mart, which has a reputation of selling cheaper clothing.

Bonobos is reported to be profitable even with its free shipping and convenient returns policy, which would definitely be beneficial for Wal-Mart. Bonobos was approaching $100 million in annual gross revenue in 2015. SimilarWeb’s traffic in the period of February to November in 2016 suggests that Bonobos has a healthy base of loyal customers. The direct traffic to the site leads the industry at 53.5%.

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 deal is Wal-Mart’s fourth acquisition within a 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). Some of the company’s recent acquisitions include online furniture retailer Hayneedle (acquired before the Jet.com merger), women’s online retailer ModCloth, outdoor gear seller MooseJaw and online shoe site ShoeBuy.

The retail giant could increase its reach to a younger demographic with this acquisition, given that the average age of a Wal-Mart shopper is between 45-54. To add to that, Wal-Mart is also likely to try to appeal more to shoppers with higher incomes with the help of Bonobos (while the company has historically appealed to the working and middle class due to its low prices) in order to drive strong e-commerce growth. For Wal-Mart, the price tag is affordable, considering the company’s $6.5 billion in cash and equivalents as of April 2017, in addition to its expertise in inventory management.