Women’s apparel e-commerce site Modcloth is being acquired by Jet, the e-commerce upstart acquired by Wal-Mart Stores last year for $3.3 billion, Jezebel reports. Financial details are unknown, although Recode reports that industry sources believe Modcloth would be fortunate to match the $80 million figure that it raised from investors.
“It was explicitly stated that starting Friday, paychecks come from Wal-Mart,” a current Modcloth employee told Jezebel, which also said that employees received offer letters from Wal-Mart on Wednesday. Requests from Retail Dive for comment from Modcloth and Wal-Mart were not immediately returned.
Modcloth has made a point of providing stylish apparel for women of all sizes, most recently blurring the lines between size segments by simply offering styles in a range of sizes, rather than separating categories with a plus size label. It’s also been working on a brick-and-mortar play through pop-ups and “fit” stores in select cities.
Wal-Mart continues gobbling up online retailers in its ongoing quest to resuscitate its flagging e-commerce efforts. In the wake of the Jet acquisition, the world's largest retailer has snapped up online shoe retailer ShoeBuy and outdoor apparel retailer Moosejaw.
Experts say Wal-Mart is banking on digital commerce to boost its appeal to higher-income consumers and evolve its business beyond its core customer demographic. “To move Wal-Mart upmarket is a Herculean task,” retail futurist Doug Stephens, author of the forthcoming book “Reengineering Retail: The Future of Selling in a Post-Digital World,” told Retail Dive last year in the wake of the Jet deal. “Any time they do, they risk losing their most loyal customers. They’ve wound themselves in a corner by virtue of just how strong their brand essence is in the market. When you say ‘Wal-Mart,’ it brings up such clear connotations. For some people it’s what they want, and for some they want nothing to do with it. Buying Jet.com is an attempt to break free from Wal-Mart’s customer base.”
Wal-Mart/Jet's interest in an e-commerce brand like Modcloth seems obvious: Modcloth is a retailer with an especially strong sense of self, thanks to the vision of its founders and the close ties it enjoys with its customer base, or what the retailer calls its “community.” That's a fairly unusual advantage, at a time when retailers from discount to luxury are struggling to connect with consumers. But it’s another investment by Wal-Mart in another e-commerce company that has struggled to actually make money.
Jet, despite not reaching profitability, had mostly wowed observers, with sales tripling over the first six months of last year. Wal-Mart’s online sales, meanwhile, rose only 30% over the same time period, excluding the holidays. Jet’s escalating online presence was just one reason Wal-Mart purchased the startup. Another is Jet's technology, in particular a signature pricing algorithm that rewards shoppers in real time with savings on items purchased and shipped together, in turn reducing supply chain and logistics costs — tech singled out Monday by Wal-Mart CEO Doug McMillon. There's also Jet's in-house talent, particularly founder Marc Lore, who previously helmed Quidsi, the parent of websites including Diapers.com and Soap.com, which sold to Amazon for $545 million.
Acquiring Jet (and now Modcloth) is hardly Wal-Mart’s first attempt at widening its appeal to deeper-pocketed customers, however. Eight years ago the retailer launched “Project Impact,” an effort to improve the quality of its apparel and home furnishings, clean up stores and present friendlier customer service. It was widely seen as a disaster. Before that, in 2005, Wal-Mart placed ads in Vogue magazine and sponsored a New York City fashion show to highlight new, higher-priced apparel lines. The result was another disaster, and another retreat.
Wal-Mart may be hoping to avoid such pitfalls by positioning Jet as an alternative. Acquisitions like Modcloth and Shoebuy are the speediest and easiest way for Wal-Mart and Jet to reach their goals, according to Profitero VP of strategy and insights Keith Anderson. The Shoebuy move, for example, “reflects the growing urgency to adapt through partnerships or acquisitions,” Anderson told The Boston Globe in January. “The pace of change is greater than the pace some of these number one and two retailers can evolve.”