3-24-17 5:44 AM EDT | Email Article
By Sarah Nassauer
Wal-Mart Stores Inc. is rapidly buying up hip, small online retailers that appeal to wealthier shoppers in hopes of finally taking on Amazon.com Inc.
Last week Wal-Mart acquired hipster clothing website ModCloth. In February it bought outdoor specialty retailer Moosejaw and the month before, online shoe seller ShoeBuy.
The small deals give Wal-Mart access to new groups of shoppers and brands that have shied away from the retail giant, which has struggled with mostly sluggish online sales growth the past two years.
Wal-Mart plans to let the retailers run as separate entities, the first time it has attempted to build new e-commerce brands in the U.S. However, some of the deals shed light on the extent of Wal-Mart's wider image challenges and the balancing act faced by small e-commerce startups looking for a payday.
After news of the ModCloth deal surfaced last week, shoppers took to Facebook and Twitter to critique Wal-Mart's image as out of line with ModCloth's feminist, socially liberal and plus-size inclusive branding.
"Wal-Mart has such a terrible track record. They are so adamantly antiunion," said Aimee Ledwell, a 41-year-old teacher who lives in Maynard, Mass., and owns about 15 dresses purchased on the site. After news of the deal, she said she erased the ModCloth app from her phone.
"Wal-Mart today is very different than some of the perceptions people still hold," said a company spokesman. "All the things that made customers love these brands in the first place are not going away, they'll only get stronger," he said.
The buying spree started after Wal-Mart bought Jet.com Inc. six months ago for $3.3 billion, installing the site's founder Marc Lore at the head of its U.S. online operations.
"Assortment is driving a lot of these acquisitions," Wal-Mart Chief Executive Doug McMillon told investors last week. "There are some suppliers that don't want to sell on Wal-Mart." Wal-Mart also wants the talent and product expertise the employees provide, executives say.
Moosejaw, known for its irreverent marketing and loyal Michigan following, gives Wal-Mart access to outdoor brands like Patagonia, Arc'teryx and North Face, even if they aren't sold through Wal-Mart directly. Its chief executive, Eoin Comerford, will take charge of the outdoor category on all Wal-Mart websites.
ModCloth, Moosejaw and ShoeBuy are part of a growing group of online retailers confronting the challenge of competing with the fast shipping and large assortment of Amazon or increasingly savvy suppliers selling directly to shoppers.
ModCloth's traffic and revenue has been weak in recent years, said people familiar with the financial statements. It had a large debt payment coming due, said one of these people. Wal-Mart bought the company for less than the roughly $75 million ModCloth raised in venture capital, plus its debt, said this person.
Last week the San Francisco-based firm's co-founders Eric Koger and Susan Gregg Koger sent an email to a small group of people who hold employee stock entitled "The death of ModCloth's common stock." Employees and the co-founders won't make any money from the sale, Mr. Kroger wrote in the email, which was reviewed by The Wall Street Journal. "It just is what it f -- ing is."
The couple didn't respond to requests for comment.
Wal-Mart's purchase price is "along the same lines" as other recent acquisitions, said a spokesman. Wal-Mart said it paid $51 million for Moosejaw and around $70 million for ShoeBuy.
The acquisition strategy is being driven largely by Mr. Lore, who wants to take on Amazon directly and grab market share faster. Asked at an industry event Monday if Wal-Mart would be happy as the second-largest U.S. online retailer after Amazon, Mr. Lore responded, "winning is winning." More acquisitions are coming, he said. In the three months ended Jan. 31, 2017, Wal-Mart's U.S. e-commerce sales grew at a healthy clip, up 29% from the year-earlier quarter.
Jet.com had explored a deal for Moosejaw, which operates 10 retail stores, before selling to Wal-Mart. The outdoor retailer's founder and family sold the company to private-equity investors in the mid-2000s. Since then the company continued to raise money and shift investors. Moosejaw's CEO didn't respond to a request for comment.
Moosejaw shoppers' reaction has been more muted than after the ModCloth purchase, but the news spurred debate. Owen McDonnell, a 31-year-old in Portsmouth, N.H., said he is wary of how Wal-Mart may change Moosejaw. He likes buying his ski and hiking gear at local shops that support outdoor enthusiasts, he said, and doesn't shop at Wal-Mart. "I still remember when the first one was built in my area and how it has changed the community and the stores that followed."
"There has been a lot of bad press historically about the values of" Wal-Mart but much of it is unwarranted, Mr. Lore said this week. When Jet.com executives told employees that Wal-Mart planned to buy the startup, "upfront people were definitely concerned," Mr. Lore said. But after getting a firsthand look inside, "people have turned the corner."
Laura Stevens and Khadeeja Safdar contributed to this article.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
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