Walmart extends its e-commerce play with Bonobos acquisition

Of Walmart’s recent uptick in acquisitions, Paula Rosenblum, a retail analyst at Retail Technology Research, explained, “[They’ve] tapped out their addressable market in their namesake stores and website, so they’re going after a different, higher-end target market.” It’s a smart strategy, she said, as Walmart’s core business is increasingly challenged by dollar stores and the expansion of German supermarket chains Lidl and Aldi to the U.S.

A Bonobos Guideshop in Philadelphia

Like Modcloth, Bonobos boasts a niche and loyal following that could help Walmart connect with a new tier of consumers. “They also own retail ‘Guideshops,’ which will likely give Walmart real experience in alternative formats that can drive down inventory and expand their reach quickly,” said Stefan Weitz, the executive vice president of technology services at Radial, an omnichannel tech company. Those guideshops follow the increasingly popular showroom model, where stores serve more as dressing rooms and ordering hubs in lieu of holding inventory.

With more than 40 of these shops across the country, Bonobos has the largest brick-and-mortar footprint of Walmart’s acquisitions thus far. Moosejaw has 10 stores, while Modcloth launched its first store last November. “What will be intriguing to watch is how Walmart will either choose to apply or not apply the Guideshop practices to its 4,000-plus stores,” said Tom Gehani, the director of client services at Brickwork, a retail software company.

Not everyone’s convinced it would ever consider going there.

“There’s a school of thought that says the Bonobos model [of leaving a store hands-free] is the future — but I honestly don’t agree with that,” said Rosenblum. “There is something about instant gratification that matters as part of the store experience.”

Walmart’s regular store structure could benefit Bonobos, as well. “Despite all the noise in the media, stores matter: For the most part, they generate more profit than pure plays, especially in apparel,” said Rosenblum, adding that return rates from direct-to-consumer sales remain problematic, with an estimated 30 percent return rate in 2016.

The deal also represents further efforts by Walmart to amp up its e-commerce strategy and compete with Amazon, with its acquisitions of Zappos and Shopbop — not to mention its advanced personalization algorithms, low prices and speedy shipping. It’s the biggest online retailer, and Bloomberg estimates the company will triple its share of the U.S. market in the next three years.

An image from Bonobos’s latest lookbook

“Walmart has really stepped up to Amazon’s pace, and the Bonobos acquisition is another peg in the upward direction,” said Charles Dimov, the director of marketing for the retail fulfillment company OrderDynamics. “They’re no longer just the inexpensive goods store. Kudos to them for [making] a strong omni-channel play and breaking out of the ‘low-price-only’ paradigm.”

Interestingly, Amazon — which announced today it will be buying the Whole Foods grocery store chain and recently opened its seventh bookstore — is making strides in the opposite direction to amplify its brick-and-mortar footprint.

“With today’s announcements, you see continued investments by Amazon into categories that are predominantly driven by offline, discretionary sales (such as grocery), and an increasing investment from Walmart into brands and categories that have shifted to be online, like apparel; apparel accounted for 19 percent of global sales in 2016,” said Gehani.

It’s hard not to view these efforts by retail’s duopoly as directly competitive, and some believe Walmart’s continued transformation leaves Amazon’s domination of the online retail space less certain. “They should absolutely be worried,” said Weitz of the Seattle-based juggernaut. “Walmart has the audience, the physical footprint and the resources to compete with Amazon at many levels.”