In September 2016, Walmart made a $3.3 billion acquihire of Marc Lore, buying his latest startup Jet.com, which was losing bundles of money at the time. Walmart CEO Doug McMillon had decided that Lore was perhaps the only person who could help his company compete with Amazon, according to Recode. Soon after, Walmart made a number of strategic decisions: 

  1. It expanded its grocery business and utilized its vast store network to get consumers their perishable items in a timely manner—something Amazon had struggled with, which prompted its Whole Foods acquisition.
  2. It acquired and incubated digitally-native brands to reinvigorate its portfolio of in-house lines, which intended to offer more unique merchandise to shoppers.
  3. It expanded its fulfillment network and increased shipping speeds.
  4. It launched an incubator, Store No. 8, to work on far-afield concepts. 

Ultimately, the second decision proved the most interesting: Buying digitally-native brands wouldn’t make a meaningful impact on the retailer’s bottom line. Walmart’s initial foray into expanding its portfolio began with its purchase of ModCloth in March 2017, followed by Bonobos in June, whose founder Andy Dunn was brought in to lead Walmart’s newly-created digital brand group. From there, the retailer snapped up Eloquii in Fall 2018. With the onset of these acquisitions, some on the outside predicted that Walmart would become the savior for many overly-funded digital brands. But all of these deals were for at most two times revenue, which is closer to how a legacy brand—not a digitally-native one—trades. 

Recode recently reported that all three brands remain unprofitable, as does Walmart’s overall U.S. ecommerce unit, which is projected to lose over $1 billion this year on revenue of more than $21 billion. As a result, Walmart is selling ModCloth and thought about doing the same with Bonobos—a decision that highlights the minimal impact and botched integration of these acquisitions. Walmart says that it is now delaying any potential acquisitions for at least a year, proving that its differentiation strategy has failed. Since each of these deals came relatively cheap—Walmart did not overpay by most measures—it’s concerning that the retailer could not make them profitable, either because, on the structural level, the businesses could never be profitable, or because building on top of Walmart’s infrastructure proved less impactful and efficient than expected.

Regardless, distribution strategy was a big part of the problem. Bonobos, ModCloth and Eloquii product was relegated to Jet.com, instead of selling on Walmart.com. This defeated the purpose of bringing the brands into the Walmart ecosystem, since Walmart itself, not Jet.com, holds all of the power. Given Walmart’s recent deprioritization of Jet.com, which means it will spend less on marketing, decrease the number of cities it operates in and disband the dedicated team by folding it into Walmart.com, these brands are seemingly on their own, which won’t be easy in today’s digital brand landscape.

Walmart is still incubating its own brands such as Allswell, its Casper competitor, but as we wrote about at the mattress line’s launch, these brands began selling exclusively on Jet.com. Since then, the company has brought its private labels to Walmart.com and its retail stores, which makes a lot more sense, but it remains confounding as to why it took so long to make the obvious move. At the same time, Co Squared, a beauty brand that was supposed to launch soon after Allswell, has yet to emerge. 

The subpar results of these next-generation private labels are surprising, especially as other retailers (Target, Amazon) are seeing massive success with owned brands. Target in particular has been thriving in this category after rebuilding its private-label program and launching brands that look a lot like many of the digitally-native companies Walmart thought about buying. Digitally-native, direct-to-consumer brands are a lot like private-labels in that they offer streamlined products, pricing and branding to shoppers. Walmart’s inability to see success from either its acquisitions or its owned brands is an interesting foil to Brandless’ failings, as we discussed last week, although as the largest retailer in the world, Walmart has an enviable customer base to tap into—the single most important asset for any brand seeking growth today. Because of this advantage, the company should be printing money with these efforts, but that is far from the current reality. As a result, the oversights are likely strategic rather than purely operational, as some of these plans were head-scratchers from day one. 

Beyond that, these developments shine a negative light on the structural dynamics of many digitally-native brands and their ability to overcome over-funding and under-profitability as part of a larger entity. While many thought Walmart was the savior, it turned out to be the repossessor—and it couldn’t even sustain that role. For digitally-native brands with tens and hundreds of millions of dollars of funding, the acquisition landscape looks a bit more bleak. Harry’s and Reformation have recently found new homes, but most brands should not count on a magic wand of an external entity to solve their strategic problems. They need to do that themselves—and expediently—if they want to give their potential acquirer and the acquisition itself the chance to succeed. For Walmart and its most recent acquisitions, that has not—and might not—ever happen.