While most of the news has been focused on Amazon’s acquisition of grocery chain Whole Foods, last week, Walmart also executed a deal. The big box retailer known for its low prices will acquire men’s fashion retailer Bonobos for $310 million as part of its strategy to build an apparel business to compete with Amazon. Bonobos is a high-end men’s retailer offering slim-fitting suits, shirts jackets and suits. Founded in 2007, Bonobos has a few retail locations, but sells mainly online to young, urban customers. Walmart has also acquired a number of online retailers including Modcloth, Moosejaw, Shoebuy.com, Hayneedle, and of course, Jet.com.
It’s no surprise that Walmart is using acquisitions to compete with Amazon by ramping up online sales and attempting to compete in fashion, but the real question is can Walmart be successful?
Facing a Branding Challenge
Branching out to fashion is not new to Walmart. In 2009, the big box retailer moved its apparel office to New York and participated in New York’s fashion week as part of a strategy to offer trendier, higher quality clothing. This endeavor failed, and after two years Walmart moved back to Arkansas.
Maybe it’s just me, but when I think about fashion, Walmart is not the first brand that comes to mind. When I want to buy trendy, clothes without breaking the bank I think of brands like Target, TJMaxx and Marshalls, Ross, H&M, Forever 21, or Nordstrom Rack. In fact, I would never think of Walmart and fashion together.
Your brand is a powerful tool for connecting with your customers, and developing brand equity is no easy task. Good brands share a consistent message, building up value in people’s minds over time so that when a consumer looks at your brand they know exactly what to expect.
Getting branding right is a challenge in any acquisition because it is the outward facing aspect of your company’s culture. After an acquisition, you have several options. You can erase the seller’s brand and bring it under your own, maintain the existing brand in parallel with your own as a sub brand, discard both brands and create a new one, or leave the seller’s brand alone. If you are acquiring a company because of its strong brand name, it’s best to leave the brand alone. If you try combining the brand into your own, you may destroy the very reason for your acquisition.
With this in mind, it’s obvious why Walmart failed when it tried launching House of Walmart back in 2009. High-end fashion and Walmart just don’t mix. This time around it seems like Walmart has learned from is past mistakes and realized it can’t build a trendy clothing line using its own brand. Instead, Walmart is acquiring multiple apparel brands, and it hopes the customers will remain loyal to them and continue purchasing their apparel.
Banking on Customer Loyalty
Although acquisition helps Walmart enter the apparel industry much quicker, a challenging road lies ahead. Bonobos and Modcloth and are probably the most well-known of Walmart’s recently acquired brands and have loyal customers, most of whom were not happy with these deals and vented their frustrations online. Merging Walmart is a hard pill to swallow for many loyal customers are afraid that Walmart will kill their favorite brand’s unique culture. If the customers leave these brands because of the deals, it may be the end of Walmart’s fashion foray.
But, given time, and if handled correctly, the acquisition may still work. Customers are a fickle bunch, and the initial shock and discontent may quiet down if Walmart maintains separate brands for Bonobos and Modcloth and continues to operate their websites. From a branding perspective, it would have been best if Walmart kept the acquisitions completely secret, but this is impossible as Walmart is a publicly traded company. When a strong brand is a driver for acquiring, the buyer must make sure it does not ruin the brand’s value after closing. Getting branding right will be key to Walmart’s success or failure in the fashion world.