It’s been four months since hipster women’s retailer ModCloth was acquired by Walmart for less than $75 million.
The partnership came as a bit of a shock to ModCloth’s fans who were drawn to the brand’s values and its unique take on fashion. Walmart, the world’s largest retailer, seemed like the opposite of the quirky, indie brand they knew and loved. Social media was flooded with disappointed tweets from loyal ModCloth fans.
— Sarah Kuelbs (@Skuelbsy) March 24, 2017
Matthew Kaness, the CEO of ModCloth who previously ran strategy at Urban Outfitters, had his work cut out for him. “We had a number of long-term customers who were not too positive about the acquisition,” he says. “There are things that we don’t control, such has how the customer perceives our new parent company. We’re working every day to explain why the partnership will actually be a huge plus for the community.”
The brand was founded by a couple, Susan and Eric Koger, who launched the brand out of their college dorm room. Last week, ModCloth celebrated its 15-year anniversary. That’s an impressive milestone for a brand that was built on the internet and went through several dot-com booms and busts. “I created this company for the simple reason that I love fashion, but I didn’t then feel like I was part of it,” Susan Koger said. “There wasn’t a company who spoke to me and made me feel good about who I was—so I decided to make it.”
Customers responded to the Kogers’ approach and over time, ModCloth built a loyal following. In its marketing, ModCloth featured a diverse array of models who were not photoshopped. It also offered an assortment of cute, vintage styles that you might find at a thrift store without the effort of digging through piles of clothes. Importantly, many of these dresses came in large sizes, catering to plus-size women who tend to be underserved by the market.
But the brand struggled in the last few years for a range of reasons, including increased competition online. At its lowest point, in 2014, it was forced to lay off more than 100 employees. So, when Walmart came knocking looking to expand its stable of fashion brands, ModCloth said yes. (Walmart has since acquired Bonobos, another digitally native brand that taps into a different market than the typical Walmart customer.)
Kaness sat down with Fast Company to discuss his strategy for dealing with the transition. His approach is twofold: Take advantage of the new financial freedom the brand has thanks to Walmart’s deep pockets and convince customers that the acquisition will ensure they have a better shopping experience with the brand.
Step One: Listen To The Barrage
ModCloth has always been community-oriented, which, in practical terms means that the brand was always gathering feedback from customers through social media and email, then using these comments to inform the way they do business. “We’re constantly asking the customer to participate, engage, and give us feedback,” Kaness says. “All of our internal processes use that feedback every day to keep iterating.”
After the acquisition, the feedback got pretty ugly. In the comments section of ModCloth’s blog post about the change in ownership, loyal customers were bitter. “This is so disappointing, to the point that it took me days to even read the article,” one wrote. “I adore shopping at ModCloth… For once I thought I found a company that was different. I see now that ModCloth is just another company like any other. The dollar is the bottom line…..Walmart?!!! Really ModCloth????”
Kaness has been trying to understand what is driving this anger. Part of it, of course, simply has to do with the fact that many people have strong feelings about Walmart’s business practices and treatment of employees. But he also saw other strains of commentary. “A lot of it was just the fear of the unknown,” he says. “Are you going to change your quality? Are you going to change your values?”
ModCloth has been responding to some of these concerns by emphasizing its commitment to inclusivity and diverse sizing. And there are regular posts about the fun, progressive culture at ModCloth’s headquarters that fly in the face of perceptions about Walmart.
"This is a time to recognize people who have struggled through hate and fought to make change possible. It's also a time to reflect on how far we've come and how far we still have to go." – Maddy Fraioli, HR Coordinator // Watch our Instagram Story to see what Pride means to ModCloth employees. . . #TeamModCloth SF is ready to celebrate #SFPride this weekend! Double tap if you are, too. ❤️????????????????
Step Two: Show And Tell
Kaness believes that ultimately, the way to prove to the customer that the partnership is a good thing is to give them better products and better customer service. “Walmart has been very good about allowing us to retain our independence, so that we continue to protect our culture and our values,” he says. “But those things are not transparent to people who are concerned about that.”
While there are many challenges connected to being part of Walmart, there are other advantages. Previously, ModCloth was funded by VC firms in the tech world that expected to see financial results very quickly. “Now, our source of capital is the world’s biggest retailer,” he says. “They understand the unit economics, supply chain, and merchandizing that we’re dealing with. This means tying up your supply chain to get better costs on fabric buys that are six to nine months out.”
One of the biggest changes is that ModCloth is increasingly going to make its own products, rather than sell other brands. “You can’t scale a digital brand if you are not selling your own product,” he says. “It’s too easy for customers that you acquire to say, ‘I can get this on Amazon or somewhere else.'”
Over the last two years, ModCloth has worked to increase the number of garments available in inclusive sizing from 20% to nearly 70%. Walmart will allow it to make nearly all of its clothes from extra-small to 3X. “A lot of manufacturers won’t make a full size range because it costs more,” says Kaness. “But we’ve built that into our cost structure without bringing prices up.”
Step Three: A New Look For A New Start
ModCloth has also been quietly rebranding to give the online store a slightly more muted, sophisticated look. Kaness has also changed the assortment of products, based on data from the site. It turns out, the vintage looks did not always sell best. While ModCloth still has a quirky vibe, it has fewer statement dresses, and more clothes that can be worn in more low-key contexts like going to the office. “We still have the retro and vintage feel, but what I’ve tried to do is make sure it feels consistently feminine but to diversify from the retro, tease out the quirky, and also bring in classic looks.”
Kaness hopes that customers that haven’t been to the site in a while will be pleasantly surprised by the new look and be drawn back in. The new site is also designed to appeal to a broader audience that may never have shopped at the brand before.
The danger with this approach is that some loyal customers will feel that ModCloth has changed its essence since the acquisition. But Kaness feels like this a risk the brand is willing to take for the ability to tap into a wider market. “There are people who have been shopping with us for a long time who are asking about where the real retro vintage dresses are they’re used to seeing,” he says. “They’re seeing a new version of ModCloth that looks very different from five years ago. But they’re also showing different signs of engagement and purchase. We have customers that come in and love the new assortment.”