20 Mar

Why Walmart Acquired ModCloth

WRITTEN BY Adrian Stevens FEATURED IN M&A and Event Driven

Acquisition boosts Walmart’s online presence

Wal-Mart Stores (WMT) appears to be on an acquisition spree, buying small online retailers to solidify its position in the fast-growing online space against its bigger rival, Amazon.com (AMZN). On March 17, Walmart announced yet another acquisition. This time the company acquired ModCloth, an online women’s fashion and accessories retailer for an undisclosed amount.

The move is likely to help Walmart gain young shoppers of ModCloth and will also enhance its expertise in the online apparel segment, which is one of the top-selling categories in digital commerce. It could also boost the company’s merchandise offerings. Walmart stated that ModCloth would continue to operate as a standalone brand.

Why Walmart Acquired ModCloth

The chart above shows Walmart’s e-commerce performance through fiscal 4Q17 (ended January 31, 2017). The company has been witnessing healthy growth at its e-commerce division, benefiting largely from the company’s strategic investment.

What makes ModCloth special

Founded in 2002 and headquartered in San Francisco, ModCloth is an online fashion and accessories retailer that offers inclusive fashion brands for young women (18–35 years). The company has one physical store in Austin, Texas. ModCloth boasts of devoted customer base and remains immensely popular among shoppers owing to its unique offerings, which include size diversity.

The move is likely to be positive for Walmart in coming quarters, though gaining the confidence of ModCloth’s customers could prove to be a challenge for the company, as many of the company’s customers showed disappointment on the social networking site Twitter (TWTR) after the acquisition announcement.

Notably, ETF investors looking for indirect exposure to Walmart might consider the Consumer Staples Select Sector SPDR ETF (XLP), which invests about 5.5% of the portfolio holdings in Walmart.

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