Modcloth tries fitting into Wal-Mart’s digital closet
Indie clothing retailer with Pittsburgh roots might add to offerings, open more stores
Wal-Mart isn’t content being the largest retailer, a household name with sprawling supercenters dotting the country.
The Arkansas-based behemoth wants a bigger piece of those coveted online sales that have been edging out brick-andmortar stores — a slice of the pie that rival Amazon doesn’t want to share.
So the company that Sam Walton founded is competing by buying up smaller online retailers — ones that specialize in, say, shoes or outdoor gear.
Or, as in a recent acquisition, a vintage-inspired women’s apparel company with Pittsburgh roots.
Last month, Wal-Mart’s Jet.com scooped up Modcloth, the quirky indie darling created in 2002 by two Carnegie Mellon University alumni, Susan Gregg Koger and Eric Koger.
The deal — the companies did not disclose financial terms but said the price tag was similar to two recent acquisitions of $50 million to $70 million — made for two unlikely partners.
Modcloth is a plucky internet startup specializing in unique finds, quirky prints, retro pants and dresses that would be at home on the cable TV show “Mad Men,” which was set in the 1960s. Modcloth built a loyal following, where customers review items and include selfies, their measurements and how the clothes fit — all to help fellow shoppers. The company also helped pioneer a no-photoshop policy for its models and features women of all shapes and sizes.
For Modcloth, the deal means the digital-native company has an opportunity to expand, which includes adding to its private label offerings, and it also could mean opening more physical stores in select cities. It has one shop in Austin, Texas, and has toured the country with temporary pop-up stores, including a stop in Pittsburgh in September.
But Wal-Mart can be a divisive topic among shoppers. There’s no argument that it has a wide appeal. The world’s largest corporation rakes in about $485 billion in revenue annually. But it’s been a target for everything from treatment of its workers to sourcing of its goods and for shutting out smaller stores once it dominates a market.
Wal-Mart’s recent buying spree is another strategy. And a milestone was its $3 billion deal for Jet.com in August 2016.
An ‘uh-oh moment’
When Wal-Mart bought Jet.com last year, it was an “uh-oh moment for brickand-mortar retail,” said Charles O’Shea, vice president of Moody’s Investors Service. “This leapfrogs them ahead of pretty much every brick-and-mortar retailer in online capability.”
The online marketplace, headquartered in Hoboken, N.Y., sells goods including groceries, pet items, jewelry, electronics and small appliances. Part of Jet.com’s appeal was that it caters to millennials and urban customers. The other was its pricing algorithm that factors in, among other things, the best warehouse to ship from.
Bloomberg wrote in December that the Jet.com site adds over 400,000 new customers a month and has a platform to support twoday shipping, “a key attribute of Amazon.”
Jet.com’s technology “is designed to make customers active participants in lowering their basket costs, with the aim of changing shopper behavior over time,” Bloomberg said.
Since then, Wal-Mart has made three more bolt-on acquisitions for Jet.com: online footwear retailer ShoeBuy.com for $70 million, outdoor and gear seller Moosejaw for $51 million, followed by Modcloth on March 17. Modcloth was sold by a consortium led by Accel Partners LP, a private company, according to Bloomberg.
Now, Wal-Mart is looking at Bonobos, a men’s fashion retailer in New York City, according to media reports.
In March, the massive retailer also launched “Store No. 8,” a technology-startup incubator in Silicon Valley
“Does Wal-Mart make those acquisitions without Jet? I don’t think so,” Mr. O’Shea said.
“These are small but important deals, and they’re philosophically telling,” he noted. “They didn’t just buy Jet and say, ‘We’re going to use your talent and expertise and turn it into a better mousetrap online.’ They’re giving Jet a checkbook, and that’s meaningful.”
Modcloth’s growth plans
When Matthew Kaness took the reins at Modcloth two years ago, one of his goals was to sell the company’s own private label goods at other storefronts and websites.
With the startup’s acquisition by Wal-Mart’s Jet.com, Modcloth will have the platform to expand. The retailer, which targets women between 18 and 35, has been touched by the overall downturn in retail and has undergone rounds of layoffs in recent years.
Will Modcloth labels be available at Jet.com?
“That’s part of the expectation,” said Mr. Kaness, chief executive.
“More than half of our assortment last year was exclusive to Modcloth, which was up from under 10 percent in 2014,” he said. “I always saw the op-portunity to sell our branded assortment at other storefronts since I joined.”
Modcloth’s three offices will remain intact, according to Aire Plichta Reese, a Modcloth spokeswoman. The company has more than 300 employees.
The majority are in Crafton (about 190), followed by Los Angeles (about 50); and San Francisco (about 42). In addition, the physical store in Austin employs about 14 people. The company is now headquartered in San Francisco.
Modcloth also is hiring, Mr. Kaness noted, and is focusing on its growth plans. “Wal-Mart and Jet leadership have said they support stand-alone brands with growth opportunities,” he said. “That’s what we’ve been focused on.”
Part of that growth is to focus on an area in which Modcloth has been a pioneer — making fashion more accessible, he said.
In the last two years, the company has made more items available in all sizes — from XS to 4X.
“The percentage of our full-size range has been taken from less than onethird to 70 percent in the last two years,” Mr. Kaness said. “So we’re excited to go faster in building out our proprietary assortment.
“Through that lens, we’re bringing style to a community where all women can shop the same assortment,” he said.
The company also is looking for chances to launch more Fit Shops, permanent stores like the one in Austin. “We’re still in experimentation mode,” he said. “We’re definitely looking at further permanent locations, as well as pop-up locations.”
With such a die-hard fan base, some customers took to social media to criticize the acquisition. Two weeks after the deal closed, Modcloth added a post to its blog entitled “So, Now What?” And Other Top Questions Answered,” which aimed to address “the disappointment, confusion, or apprehension” some customers expressed.
Still, Mr. Kaness said he is looking forward to the new opportunities made possible by an owner with deep pockets.
“For us, this is an opportunity to take advantage of this bigger platform and to have a bigger impact.”