Recent big acquisition news from Walmart and Amazon, ranked #1 and #3 in the Forbes list of the world’s largest retailers, confirmed rumors circulating since at least April that Walmart had its eye on online men’s fashion retailer Bonobos and Amazon was flirting with the idea of buying high-end grocer Whole Foods.
While the deals differ markedly in size and scale, $310 million for Bonobos and $13.7 billion for Whole Foods, both represent a step beyond Walmart’s and Amazon’s mass-market roots and into the premium market where luxury consumers live. It’s a strategy that mid-market department store retail Hudson Bay Company followed when it purchased Lord & Taylor and Saks Fifth Avenue several years ago, though its talks with another luxury market leader, Neiman Marcus, have now ended.
Having reported recently about the “New David” brands identified by global business development firm Marvin Traub Associates as the most important new-age brands to watch, of which Bonobos is one of the top 200 Davids founded, nurtured and launched online that appeal to the next generation of luxury consumers called HENRYs (high-earners-not-rich-yet),I caught up with Mortimer Singer, CEO of the NYC-based TRAUB, to discuss the implications of these deals.
These deals are the start of a M&A trend
“It’s the smoke of where the fire will soon be raging,” Singer says, talking about both digitally-native Amazon’s move into brick-and-mortar and Walmart picking off one of the first and well established David brands to be acquired. It’s the very trend that author Dave Knox writes about in Predicting the Turn: The High Stakes Game of Business Between Startups and Blue Chips.
Singer sees this trend in mergers and acquisitions starting to accelerate, “It will awaken the others strategic buyers looking to buy growth aimed specifically at younger, more affluent customers. If you can’t beat them, join them by buying them.” Both companies gain entrance into market segments they need to be in and quickly gain expertise to be successful.
Interestingly, these acquisitions wouldn’t be nearly so surprising if they had happened the other way around – Amazon/Bonobos and Walmart/Whole Foods. Such deals would have played into each company’s core competencies and been more business as usual.
But in these new partnerships the companies are signaling big strategic moves and future directions to come. “It’s the beginning of powerful mega-conglomerates that combine digitally-native, direct-to-consumer businesses with traditional brick-and-mortar on a grand scale,” Singer proposes.
Singer sees these acquisitions as a natural evolution in each company’s core mission which ultimately is about creating value for the customer “wherever that value is.”
Where Bonobos fits in Walmart’s mission
For example, Walmart’s mission is “We save people money so they can live better.” Bonobos fulfills that promise, not necessarily in Walmart’s famed “Everyday Low Prices” way, but, as Singer says, “They are giving that same promise to the higher-end customer. Bonobos provides value for what the product actually is, not lowest price in the market but in the premium market it is a very well-priced product. It is a different mindset and a new direction to Walmart’s heritage mission.”
With Bonobos’ founder Andy Dunn remaining at the helm of the brand and it to operate under Walmart’s eCommerce division led by Marc Lore, Singer sees no threat to Bonobos’ established business. “Dunn will be important to guide the new eCommerce group Walmart is forming,” Singer says.
As one of the pioneers in digitally-native brands, Dunn is a leader that many of the founders of younger companies that followed Bonobos look up to. He helped pave the road for them. “Andy Dunn has relationships in the David world. The trailblazer can become the kingmaker by using Walmart’s balance sheet to buy some of the other Davids,” Singer predicts.
Amazon’s first foray into brick-and-mortar
For Amazon, the Whole Foods acquisition is its first serious foray into brick-and-mortar retail, and as such moves it directly into Walmart’s space, but with technology capabilities beyond mere ecommerce.
“Amazon Fresh will be supercharged by this in every major city in the country through Whole Foods’ premium locations,” Singer notes. “Then they have Amazon Go which is POS technology applied in the retail environment. With Whole Foods they can test it in real time and accelerate its growth. For me it’s the Trojan horse for Amazon into brick and mortar.”
Looking to the future, I asked Singer to predict other of the 200 Davids companies primed and ready to be picked off. “Everlane has significant scale, and has built a robust business so far. Warby Parker is another. Stitch Fix too is interesting because it has a different subscription-based model and a new approach to retailing.”
While individually the 200 Davids companies that TRAUB has identified average only $10 million in sales, combined they represent $2 billion in total. They thrive by creating exceptional product, finding an unmet need, delivering an experience and most importantly, owing a direct relationship with customers.
“As more of the retail industry spend shifts online, the Davids will only continue to erode share from the majors,” Singer says. “They are small but mighty in their numbers, and their fleet is only growing.”