The Archive November 13, 2019

What ModCloth (and Brands Like It) Will Need to Do to Recover After an Anger-Inducing Acquisition

When a Brand Sells Its Soul: Surviving a Heartbreaking Buyout

On Saint Patrick’s Day this year, the word of the day was luck. But whether or not the luck was good or bad for ModCloth—the quirky, online retailer of vintage-inspired women’s apparel—remains to be seen. Because on March 17, a deal was finalized that has caused a stir among ModCloth’s most ardent fans: Walmart’s latest subsidiary, the 3-year-old e-commerce startup Jet.com, bought the ModCloth brand—assets, operations, and all. It was not the first buyout to happen following Walmart’s absorption of Jet.com. In a matter of months, Walmart also acquired ShoeBuy, Moosejaw, and high-end menswear retailer Bonobos in an effort to bring its e-commerce capabilities up to par. 

In order to compete with Amazon, the tech juggernaut currently cornering the market, Walmart seems to have set its sights on small and/or struggling digitally native vertical brands, and especially those brands poised to compete as top performers in their respective areas.

In light of its recent buying frenzy, is Walmart a welcome rainfall for these budding brands, or is it killing off the tender indie spirit—byusing a slash-and-burn technique—to make way for crops of its own planting?

Many believe these acquisitions could be devastating shots fired at Walmart’s biggest e-commerce competitor. But will they hit their mark? Can indie brands adopted by a retail giant like Walmart actually carry on? Only time will tell, but the consumer backlash in response to these unlikely partnerships bears all the signs of a business deal in distress.

Walmart’s Buying Spree

In February, Walmart tightened its grip on the world of online apparel with a relatively easy in: a buyout of the online outdoor-goods company Moosejaw. Outdoor retailers have been floundering of late (they have been liquidated, acquired, or filing for bankruptcy pretty much across the board), so nabbing Moosejaw was a worthwhile move for both parties. ShoeBuy’s acquisition a month prior slipped under the radar, too, probably because its wide array of product offerings will do little more than extend both reach and shopping options for customers of both Jet.com and the online footwear company.

However, Walmart (i.e., Jet.com) appears to be having considerable trouble with the cultural shifts taking place in the wake of its more recent acquisitions. The negativity from ModCloth customers and Bonobos fans has called into question whether the megaretailer possesses the agility to navigate these shifts. In light of its recent buying frenzy, is Walmart a welcome rainfall for these budding brands, or is it killing off the tender indie spirit—byusing a slash-and-burn technique—to make way for crops of its own planting? Either way, it’s all part of a strategy to grow its e-commerce segment, but an ill-advised partnership might just stunt its new acquisitions before they’ve taken root.

The Moosejaw and ShoeBuy mergers seemed to take place without much fuss, but the recent acquisition of ModCloth, an e-retailer declared to be so unlike Walmart, started to draw wave after wave of negative attention to the retail giant’s recent moves. Why are these events in particular causing such uproar? First, let’s get to know ModCloth as a brand.

ModCloth: A History

Started in a Carnegie Mellon University dorm room and now spanning three major cities and employing hundreds, ModCloth has seen an incredibly successful run for most of its 15 years in business. The company experienced huge growth in revenue and personnel in its early years, was lauded for supporting independent designers and helping to grow indie labels, and developed a reputation as an advocate for body positivity and the empowerment of women from all walks of life. ModCloth’s founder was even recognized by the White House as an agent of positive change in the Pittsburgh community.

In short, the vintage indie darling was doing well (and doing some good) until financial struggles forced executives to restructure, laying off around 70 employees in 2014. Despite internal turmoil, though, the brand has cultivated consistent engagement with its customers through the use of social media platforms and by providing detailed product descriptions, a Style Gallery of user-submitted outfit photos, and helpful comment sections for feedback and fit tips on its beautifully on-brand website.

To put it mildly, ModCloth shoppers are unhappy, and they’re making their feelings known.

While some have laid blame for ModCloth’s money troubles on the brand’s 2010 decision to move operations from Pittsburgh to San Francisco—one of the country’s most expensive places to operate a business—still others have cited the appointment of a new CEO, Matthew Kaness (hailing from Urban Outfitters), as the reason for the brand’s recent decline in quality, user experience, and team morale, as well as the degenerating sense of inclusivity that drew so many shoppers to the e-retailer in the first place.

Whatever the cause, the brand’s most faithful fans were shocked and dismayed to learn of the final straw: Their favorite independent clothing supplier was linking up with a colossally controversial brand like Walmart. Blistering accusations began to flythat the brand had turned its back on ideals and effectively ruined itself by “going corporate.” Comments of the kind have been mixed in with threads recommending alternative shopping destinations and personal attacks on any commenter who dared to defend ModCloth’s founder and former chief creative officer, Susan Gregg Koger, or her decision. To put it mildly, ModCloth shoppers are unhappy, and they’re making their feelings known.

An Unlikely Pair

Although it appears to have been the only alternative to going out of business, ModCloth’s new partnership with a big-name corporation—and especially one whose business practices have most often been described as “egregious”—threatens to chip away at the exclusivity and brand equity that ModCloth has built up over its lifespan. Try as she might to put a positive spin on the change in ownership, Gregg Koger apparently had a hard time convincing even her own colleagues that their new parent company’s values would meld with ModCloth’s. According to Jezebel’s report, which leaked the news to the public, scoffs and snickering were heard at the team meeting that broke news of the merger to the staff.

But the acquisition should be beneficial for both parties, at least in theory. Walmart is long overdue for a stronger e-commerce presence, and ModCloth has been struggling to make ends meet comfortably, as acknowledged by Gregg Koger in the official blog post she wrote to announce the merger. Acquiring customers is difficult, and expanding a brand beyond its established comfort zone is equally as tough, so both Jet.com and ModCloth should be able to prop each other up in these respects. In fact, this type of buyout is becoming more and more common elsewhere in the world of retail.

It’s a Brand-Eat-Brand World

Despite the cultural disparity at play in the case of ModCloth and Walmart, the nature of this acquisition is nothing new. In recent years, successful online-native brands with a substantial social media following are being targeted for their direct line to an especially critical target audience: millennials. And as long as this continues to benefit big businesses and bail out small ones, it will continue to happen. But this practice isn’t nefarious so much as it is necessary.

ModCloth’s new partnership with a big-name corporation threatens to chip away at the exclusivity and brand equity that the indie online retailer has built up over its lifespan.

Clothing retailers aren’t the only businesses acquiring indie brands. Big-name beauty corporations are doing the same, and with good reason. Bloomberg reported over 50 examples of this happening in 2016 alone, including IT Cosmetics, the sales of which topped $182 million after selling to L’Oreal. This example, and many others like it, proves that a private brand that’s gained popularity in the digital realm can be worth acquiring, almost regardless of its prior sales record.

4 Lessons Learned

Gregg Koger may wish that the big news hadn’t been spilled before she had the chance to explain her decision to sell, but she did a few things absolutely right in responding to customer complaints. Since time immemorial, indie shoppers have been quick to vilify corporate Goliaths. But what might look to some like a greedy grab might actually be the extension of a helping hand. To make sure that customers see an otherwise devastating deal as more the latter than the former, here are a few key ways that ModCloth can (and should) work to make things right and, hopefully, to bring those customers around:

  1. Communicate intentions:For starters, Gregg Koger wrote a heartfelt missive to fans already outraged in the days after Jezebel spilled the beans. Then, she let them air their grievances and ask questions, waited two weeks for the dust to settle a bit, and did it again.In the follow-up blog post, Gregg Koger explained the reasoning behind this merger in a thoughtful, detailed way. She expressed both concern and compassion for the disgruntled “former” shoppers, and worked to repair the damage this sudden news (and the overly cheery tone of the initial announcement) had wrought. She also later sat for an interview with one of Jezebel’s senior reporters, under the condition that a link to the full, unedited interview would be included with the article, which enabled her to communicate her message clearly and thoroughly. In the interview, Gregg Koger accepted full responsibility for the decision that had caused such a tumult. She shared her mixed feelings about the customer response—distress that people were so upset and so quick to accuse her of greediness and treachery, but also pride that something she had built inspired such a strong sense of devotion in the community. Although customers continued to vent their ire over the partnership, ModCloth executives did the right thing in allowing tempers to cool slightly before tackling many of their fans’ most pressing questions.
  2. Keep it consistent, or pay the consequences:According to the official press release, ModCloth will still be operating as a “stand-alone and complementary brand” to Walmart’s other e-commerce sites. And the release suggests that, because the ModCloth brand is so trusted by millions of millennial women, the hope is to maintain that trust and allow it to supplement the Walmart business moving forward. Walmart is effusive with praise of ModCloth’s work to date, and ModCloth’s founder is (or certainly seems) enthusiastic about the merger.It sounds like integration shouldn’t be an issue, because ModCloth operations are predicted to go on as before, with the hopefully (at least, in the case of on-the-fence ModCloth shoppers) unseen helping hand of the Walmart-owned subsidiary Jet.com. The onus is now on ModCloth (and, specifically, CEO Kaness) to do everything possible to avoid dilution of the brand. Since Jet.com is clearly viewing ModCloth customer retention as a perk of this acquisition, it would do well to make sure that the apparel brand continues to operate as a distinct entity. Otherwise, Jet.com risks alienating the existing customer base it is hoping so dearly to retain.
  3. Meet them where they stand:Thanks to modern digital platforms, it is easier than ever to communicate directly with customers, something that is essential when a business decision stirs up so much controversy. It’s especially important to know your customers well enough to take to the platforms they use and to join the conversation as an upbeat advocate for your brand’s mission.Prior to the follow-up blog post, ModCloth’s social media and customer-service teams had been working full speed to respond to comments and to try to keep the most venomous accusations in check. This helped to keep ModCloth’s caring, inclusive culture at the forefront, despite the fact that many commenters would have none of it. The company did everything in its power to keep things positive and to assure customers that its actions would only help the brand sustain the momentum it had been striving to achieve over the years.
  4. Keep the faith:All that’s left is for executives to follow through on the promises they’ve made. Gregg Koger promised to increase value to customers by utilizing Jet.com’s resources to open more brick-and-mortar stores nationwide. This would allow the brand to “reach more women” than ever before, and ModCloth may now need to do exactly that. And although there are some erstwhile ModCloth loyalists who claim they will never shop the brand again, still others are waiting to find out what new shape the brand will take. As long as ModCloth stays true to its identity and uses its newfound power for good and not evil, there’s still hope that some preacquisition customers will be retained.

Bonobos Bands with Walmart

While dust still lingered in the air after the ModCloth news broke, rumors began to circulate that Walmart was close to acquiring Bonobos, and yet another faction of customers started to speak out against a Walmart business deal. As with ModCloth shoppers, Bonobos has curried favor with an independent, unique group of young customers, many of whom were bound to feel betrayed by their favorite brand’s fraternization with Walmart. While the typical Bonobos shopper belongs to a different demographic than the ModCloth set, the message that fans of the high-end menswear brand sent to their beloved brand’s executives is the same: Don’t abandon your following.

Fit-focused and fashion-forward, Bonobos customers declared the potential move “brand suicide,” their bewilderment apparently owed to the absence of commonality between Walmart menswear shoppers, whose purchases usually ring in under $30 per piece, and Bonobos faithfuls, who can easily spend over $1,000 for one of the retailer’s casual suits. Then, on June 16, Bonobos fans’ fears were realized after weeks and weeks of waiting. The dreaded Walmart deal was confirmed, and the Twitterverse erupted. Forbes published an article declaring the confirmed acquisition to be a “bigger deal than Amazon‚ Whole Foods,” and customers seem to share the sentiment.

The hope is that this deal will provide further incentive for Walmart-Jet.com to start spinning these mergers to its advantage. Shoppers were already prematurely unhappy, so nipping any negative feelings in the bud is crucial. Never minding the fact that the early rumblings about this acquisition launched brand awareness of Bonobos to new heights, customers in general seem to feel that the move constitutes a serious downgrade for the menswear brand—one that they worry may end in total absorption, despite Bonobos CEO (and the man now tasked with overseeing all of Walmart’s digital brands) Andy Dunn’s fervent hope that, ideally, they “can build something stand-alone.”

It’s Not Business. It’s Personal

For better or worse, the die is cast, the deal has been made final, and all that remains is for ModCloth to convince the public that the acquisition was absolutely necessary to maintain the brand’s position as a positive, inclusive influence in the fashion industry. Gregg Koger’s confidence in the positive outcome of this merger is admirable, even if its detractors think her decision-making is flawed.

In this specific case, it’s a matter of ethics. ModCloth’s indie cred and glowing history of standing up for human rights, workers’ rights, and people of all sizes, body types, and lifestyles means that this buyout has become about a lot more than the quality of clothes or the reach of e-commerce. Gregg Koger has done her best to convey to her following that these values have not and will not be changed, despite Walmart’s reputation.

More important even than running damage control, Walmart would do well to learn from this experience as it continues to dig into digital. Because, according to the brand’s new head of digital, Marc Lore (who was poached during the acquisition of Jet.com last year), this isn’t the end of it. “We’re seeing what these acquisitions have done for the business,” he recently told Recode. “It’s definitely a nice surge, so we will continue to do it.”

Photos: Shutterstock

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