What An Acquisition of Eloquii Would Signal About Walmart’s Growth Strategy

Walmart (NYSE:WMT) is reportedly planning to acquire online fashion startup Eloquii, which is a direct-to-consumer brand that sells plus-sized women’s apparel. Although the exact details of the deal are not available, the deal is believed to close at around $100 million sometime later in the quarter. The deal could mark a major step for Walmart – as women’s plus-size fashion is one of the fastest-growing segments, with an estimated $21 billion market. In fact, more than half of U.S. women aged 18-65 wear a size 14 or larger, but traditional fashion brands have often overlooked the market. The Eloquii acquisition seems to be in line with Walmart’s online growth strategy of strengthening the assortment and category expertise on Jet.com and Walmart.com. 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.

Accordingly, we expect Walmart’s revenue to grow by nearly $24 billion (2% CAGR) through fiscal 2021 (year ending January 2021) and expect its e-commerce sales to contribute about 6% of the total sales. While this figure is unlikely to be massive, it should help the company offset secular pressure on brick-and-mortar retail locations. To arrive at our fiscal 2020 net revenue estimates for Walmart, we have broken down the revenue streams and estimated separately. We have created an interactive dashboard for the retailer, which provides a detailed analysis of how to arrive at this growth number. You can make changes to these variables to arrive at your own revenue estimates for the company. We have a $98 price estimate for Walmart, which is slightly ahead of the current market price.

Walmart’s Growing Online Presence

E-commerce currently accounts for only around 4% of Walmart’s total revenue, but the company has been emphasizing e-commerce growth going forward, in order to remain competitive in the Amazon (NASDAQ: AMZN) dominated retail market. Walmart has been on an acquisition spree since it acquired Jet.com, which transformed the company’s online operations and brought in a new team of e-commerce executives. The company’s acquisitions include online furniture retailer Hayneedle, women’s online retailer ModCloth, outdoor gear seller MooseJaw, online shoe site ShoeBuy, and men’s upscale fashion site Bonobos. These acquisitions have provided Walmart with a diverse product portfolio, along with increased digital marketing expertise, which should help the company withstand growing competition from internet retailers. However, we expect this aggressive push in online initiatives to put pressure on margins in the near term, due to increased fulfillment costs resulting from growth in digital sales.

Total U.S. e-commerce sales came in at $453 billion for 2017 (8.9% of total retail sales), and are expected to reach $526 billion (+16% y-o-y), representing 10% of total retail sales in 2018. Additionally, total e-commerce sales could grow to represent 12.4% of U.S. retail sales in 2020 and reach approximately $703 billion. Going forward, we expect Walmart’s e-commerce sales to contribute about 6% in the company’s total sales in fiscal 2021.

We have calculated Walmart’s U.S.revenues by estimating the number of stores, square footage per store and revenue per square foot. We expect over 5020 stores in the domestic market with an average square footage per store of 145k and revenue per square foot of $483, translating into $351 billion in U.S. revenues in fiscal 2021. Further, we expect Walmart’s e-commerce sales to grow at an 18% CAGR through fiscal 2021, based on the company’s reported e-commerce numbers in previous years.

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