Last Friday, the plate tectonics of the e-commerce world shifted.
Amazon, the world’s biggest online retailer, acquired high-end grocer Whole Foods for $13.4 billion. On the same day, Walmart, which still dominates the realm of brick-and-mortar retail, acquired the online menswear brand Bonobos for $310 million. The move threw into relief exactly how fiercely the two corporations are competing for the American consumer by working to seamlessly integrate online and offline shopping experiences. By acquiring Whole Foods and Bonobos–brands with feel-good values that millennials love–they’re hoping to further tap into the yuppie market.
In April, rumors began spreading that Bonobos might sell itself to Walmart. The news came as a surprise, since the two brands could not be more different. Bonobos, unlike Whole Foods, did not appear to be in financial trouble and had raised a total of $125 million to build brick-and- mortar showrooms around the country. “In some ways, it was a surprise even to me that we chose to take this route,” Andy Dunn, Bonobos’s founder and CEO, told Fast Company. “My fear has been that customer reaction—based on the perception of the Walmart brand—is going to change the nature of Bonobos.”
Ugh, not thrilled that I have a closet full of walmart clothes now. It just leaves a bad taste in my mouth when I think about it.
— Boris Fowler (@borisfowler) June 16, 2017
When he founded Bonobos in 2007, Dunn’s goal was to offer high-end, stylish men’s clothing at fair prices, thanks to a direct-to-consumer, vertically integrated approach. Dunn spoke often about building a strong company culture, where the happiness of employees was a priority. Meanwhile, Walmart creates cheaper products for a lower-income consumer and it regularly comes under fire for the way it treats workers. “I don’t want to pretend that people aren’t going to disagree with (our decision) and are turned off by the Walmart brand,” Dunn says. “It was a huge part of the calculus for me.”
So what convinced Dunn to sell the company to Walmart? A big part of it seems to be Marc Lore, the former CEO of Jet.com, which was acquired by Walmart in 2016. Lore and Dunn have been friends for some time, and spent time discussing Walmart’s ambitions to scale up its digital presence. Lore now runs all of Walmart’s e-commerce operations and has been tasked with acquiring brands that will help drive innovation at Walmart. His first move was to acquire women’s e-commerce brand ModCloth. Some of Dunn’s anxieties about Walmart changing customers’ impression of Bonobos might be justified: After ModCloth was acquired, customers took to social media and the brand’s blog, writing vitriolic tirades about how ModCloth had sold out.
Deleting the @ModCloth app. I can't support you now that you are owned by Walmart,a company that is against living wages.
— magicshelle (@magicshelle) March 15, 2017
But despite these anxieties, Lore managed to convince Dunn that Bonobos would thrive within Walmart, even though the initial transition period might involve a few bumps. Lore made the case that Bonobos would have access to new efficiencies when it comes to supply chain, logistics, and shipping, and could reach a new type of shopper through the Jet.com website. Eventually, Dunn came to believe that the acquisition was the best way for a relatively small e-commerce brand like Bonobos to scale. “It gives us access to a massive new customer base,” Dunn says, though he points out that there are no plans, as yet, to sell Bonobos product at Walmart or Walmart.com.
Lore and Dunn also agreed that Walmart could learn something from Bonobos’s vertically integrated supply chain. Bonobos designs and manufactures all products in-house, which allows it to cut out middlemen costs. With the new deal, Dunn will be in charge of all of Walmart’s vertically integrated operations. While the scope of his job is still being discussed, it appears as if his areas of responsibility will include both Bonobos and ModCloth, which will increasingly sell its own products. Over time, Walmart may try to focus on owning more of its supply chain, and Dunn would serve as an advisor throughout such a process.
It took some time for Dunn to come around to seeing the acquisition as a good thing. As he was making the decision, he spent time at Walmart stores, which reminded him of shopping at the chain in his childhood. “I started talking to my mom about how much she likes shopping at Walmart,” he says. “I remembered growing up in Chicago and getting photos developed there. I realized that sometimes, in coastal cities, we develop a perspective on the rest of the country that maybe isn’t perfectly accurate.”
In stores, Dunn was heartened by how employees take care of one another. “(I saw) an employee fund that people were putting money into right after lunch for associates who are in need, for instance, if a spouse dies,” he says. “They were pooling capital for other people.”
While Dunn took the fund as a symbol of a close-knit community of workers in stores, some might see such a fund as a sign that Walmart does not adequately take care of its employees. Walmart is constantly under fire for paying workers low wages, fighting their attempts to unionize, and generally treating them as disposable. Two years ago, Walmart raised the starting wage of workers to $9 an hour and shortened the training program so that workers can move up to the $10 an hour bracket in three months rather than six. But these changes come, in part, as a response to years of worker protests and activism.
Dunn will now have to reckon with bridging that cultural gap. He got his first taste of it when the rumors first hit the press. While Walmart executives are used to holding off on talking to employees and customers about major decisions, Bonobos professes to be open about its actions. “The leak was hard for us to manage from a cultural standpoint,” he says. “We’re so used to transparency and we couldn’t say anything about it.”
Will a brand like Bonobos help change the way that Walmart, as a whole, treats its employee base? Dunn is doubtful, but hopes he will be able to make a difference. “I don’t know if I can improve things compared to what Doug Macmillan (Walmart’s CEO) and his team are doing,” he says. “We’re going to be a tiny corner in the overall Walmart family. I am proud of the culture at Bonobos and to the extent that that is helpful to Walmart, we would be honored.”