Member Brief: The Brandless™ Investment

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When you consider Softbank’s history of investments, the $240 million stake in Brandless shouldn’t surprise you. To better understand how important eCommerce is to our global economy, consider that SoftBank’s 21 year investment record has been heavily focused on online retail as a major proponent of a globalized, online-first economy.

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Issue No. 259: Walmart’s Next Acquisition

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Over the weekend, 2PM released the first executive member brief. It covered quite a bit of ground in an in-depth report on Walmart v Amazon eCommerce called Walmart Ventures.


Here is a small excerpt:

The competition between Walmart and Amazon has never been stiffer. Consumerism has always been about the heart, until Amazon made it about efficiency and logic. But for items as intimate as what you wear and what you sleep on, is logic enough?

Walmart is betting on the heart again by focusing on brand affinity, representation, and reinvigorating consumer faith. By using eCommerce as the tip of the spear, their brick and mortar presence will innovate along with it.


It’s no secret that I tend to believe in Marc Lore’s vision for a modern Walmart. In my recent report, I focused on Walmart’s brand-equity growth by means of DNVB acquisition (Modcloth, Moosejaw, Bonobos, etc). And 2PM Executive Member Taylor Holiday called me on it:

Solid stuff as always Web. The question I have that this post ignores a little is related to logistics power. You touch briefly on the convenience element that Amazon focuses on and I wonder how Walmart will seek to combat this? The thing I believe would be super super interesting would be Walmart could combine the DNVB style slick brand launch with convenience of a logistics super power. Imagine Allswell style brand with Same Day Delivery. Now that would be interesting.

Taylor Holiday, Managing Partner of Common Thread

In my report, I made two tables available: (1) Walmart’s existing acquisitions and (2) Walmart’s target acquisitions. To Taylor’s point, in discussing Walmart’s appetite for acquiring sexy DNVB’s (or building them from scratch), it’s easy to overlook that they’ve also acquired Parcel (2017). Walmart is working on building that logistics super power. And if they can’t finish the job, another $1B+ acquisition is on the way.

Walmart on Parcel’s acquisition: 

New York City is the top market for both Jet and Walmart.com, and because of the density of the area – along with the proximity of our fulfillment centers – it’s the perfect place for high-impact innovation. Born and bred in New York City, Parcel has developed unique expertise delivering to customers in a distinctly challenging and essential market. This acquisition allows us to continue testing ways to offer fast delivery while lowering our operating costs. We plan to leverage Parcel for last-mile delivery to customers in New York City – including same-day delivery – for both general merchandise as well as fresh and frozen groceries from Walmart and Jet.

As further proof that logistics is on the minds of Walmart executives, look no further than last night’s Oscar’s campaign.

The star of each 60-second spot is the same as for Walmart’s current ad campaign – the retailer’s signature blue shipping box – a nod to corporate priorities in the battle to catch Amazon in e-commerce. 

Jack Neff, AdAge

And if I had to project Walmart’s war room strategy, a Postmates acquisition comes to mind. Nationally, it’s one of the most trusted of the last mile platforms and it’s proven that it can operate in many of America’s largest markets. Couple this with the company’s recent emphasis on grocery delivery and you’re looking at quite a bit of shared virtue. Walmart’s grocery business is of its highest priorities.

Assuming that Parcel’s acquisition was a test, the Postmates acquisition could be the beneficiary of Walmart’s single-market experiment. After DoorDash’s recent $535M raise, this is an acquisition that makes sense for the gritty and resourceful Basti Lehmann and company. And it’s a purchase that is in Walmart’s price range. Paging Marc Lore.

Read more of the issue here

 

Issue No. 246: DNVB’s will be just fine

A last word: eCommerce is a bear

Consumers are becoming brand agnostic and DNVB’s seem to be holding on to their loyalty by appealing to internet-first consumers. It’s expensive but for some DNVB’s, there may be a positive outcome.

Read: From a digitally-native gold rush to an impending bloodbath

One passage stood out when I read Richie Seigel’s latest for his Loose Threads project.

While many people believe that Digitally-Native Brands have both larger addressable markets and cheaper acquisition avenues to realize their potential—leading to this influx of capital—there is little proof that these theories will result in long-lasting or profitable companies.

Building a successful brand takes time. While many Digitally-Native Brands have tried to take shortcuts—raising more money and spending it faster—many of these companies find themselves in precarious positions, with investors breathing down their necks, employees’ livelihoods in their hands, and uncertainty about what comes next.

When I reached out to a prominent (profitable) DNVB founder / CEO to discuss this prediction, we both agreed that it had merit. There will be many bad DNVB exits. But there will be even more heritage brands that will fail along with the stores that propped them up for years.

You know that age old adage, you only have to outrun one person to escape a bear’s pursuit? In this analogy, heritage brands are the ones being outrun by DNVB’s.

Of the heritage brands that Seigel lists in his second para, the publicly traded ones are trading at an average of -25% on the year. This includes Columbus’s own L Brands (owner of Victoria Secret); VS is a heritage brand that’s anchoring a crumbling stock due to inbound intimates competition from a growing number of DNVB’s.

In addition, most heritage brands rely upon department stores and costly ten-year leases to bolster sales. Most of these investments are quietly financed by toxic amounts of private equity. Someone check on J. Crew for us.

Wal-Mart, who invests heavily in DNVB’s, understands the importance of the internet as a platform for retail. They are doing something interesting to compete against Amazon:

“Wal-Mart Stores Inc. is near a deal to add Lord & Taylor to its website, part of a broader effort by the retail giant to build an online shopping destination that can compete with Amazon.com Inc., according to people familiar with the matter.” – WSJ

This is why Wal-Mart is doing this: They will now sell fashion’s heritage brands through Walmart.com, becoming a new-aged destination for all things department store: including Patagonia, Ralph Lauren, Nike, and maybe even Commes De Garcons.

This is while their six most recent acquisitions are also helping them appeal to new audiences. Jet.com has already announced a private label. And it’s no secret that Wal-Mart is building a strong case with Mark Lore’s new strategy. In time, Wal-Mart will be a machine capable of launching new private-labeled brands that target the consumers of the heritage brands of old.

Mark Lore’s recent Lord & Taylor move has Bezos’ tutelage written all over it.

Amazon, Alibaba, and Wal-Mart are vying to become this century’s version of the department store. And every brand should be nervous but it’s the (eCommerce-lagging) heritage brands that should be most afraid of the bloodbath. These brands have invested little in eCommerce and even less in the types of communities that innovators like Stitch Fix seems to have fostered.

As consumers become more brand agnostic, heritage brands are closest to being devoured by the bear.

 

See more of the issue here.