Walmart Announces the Acquisition of ModCloth, a Leading Online Women’s Fashion Retailer

Walmart has acquired ModCloth, a 15-year-old online retailer best known for its vintage-inspired clothing.

Walmart bought the women’s clothing company on behalf of Jet.com, its subsidiary that has been on an acquisition spree over the last 12 months.

ModCloth was founded by high school sweethearts Susan Gregg Koger and Eric Koger in 2002 while both were studying at Carnegie Mellon.

What started as a product of Susan’s finds in thrift stores turned into a $150 million revenue business by 2015, the company said that year.

The company raised nearly $80 million in venture capital and eventually relocated to San Francisco.

It hired Urban Outfitters exec Matt Kaness to be CEO two years ago and had started to experiment with physical stores, including a permanent outpost in Austin.

But ModCloth had struggled to operate profitably and had been unsuccessful in recent attempts to raise additional funding, sources said.

The company also had debt coming due.

According to TechCrunch, the deal, which had already been rumored, is finalized and will fetch a price tag between $50 million and $75 million, according to sources closest to the matter said.

This is a disappointing outcome for ModCloth, which had raised $78 million from notable investors like Norwest Venture Partners, FLOODGATE, First Round, and Accel Partners. (However, Norwest and Accel also invested in Jet).

We are told that some of the capital will be going back to investors, but not all of it.

Some of the acquisition money will go to retaining key employees.

Read: A Message from ModCloth Co-Founder, Susan Gregg Koger

The acquisition comes after a series of struggles for ModCloth, including several rounds of layoffs. The company saw little growth in 2014, and reduced its engineering team to just over half a dozen.

In 2015, co-founder and CEO Eric Kroger was replaced by Matthew A. Kaness, previously Urban Outfitters’ Chief Strategy Officer – a move which staff were then fairly optimistic about, hoping for a turnaround. The management team was also largely revamped in 2015.

New hires with traditional retail backgrounds joined, including ModCloth CMO Mary Alderete, previously of True Religion Brand Jeans, Levi Strauss & Co. and Gap; and ModCloth VP of Stores & Retail Ops, Elizabeth Cooksey, previously of Nike, Free People, Anthropologie, and Urban Outfitters. Alderete only lasted a year, according to LinkedIn.

ModCloth also installed Nicolas Genest, the prior CTO of the European site vente-privee.com and The RealReal, as its CTO, replacing Udi Nir, who served as CTO from Dec 2012-2104. It overhauled it technology stack to scale the business. And it brought in Phil Neri, previously CFO of Serena & Lily, as its CFO that same year.

The initial plan was to use retail stores as part of its turnaround effort. This began with pop-ups in places like L.A. and San Francisco, and later, a retail store in Austin carrying a full range of sizes.

The company also doubled down on its private label products and exclusives. These efforts were funded through a $15 million inside round in 2015.

The initiatives were paying off, with a profitable year of growth that year, Bloomberg reported.

That said, the company still needed more growth capital to follow through with its plans, and was failing to raise. Layoffs continued during 2015 and 2016, which led to a downturn in employee morale.

In a series of Glassdoor reviews, the CEO and exec team were taken to task for their decision-making, approach to the brand, and overworking an already stretched-thin staff, among other things.

Walmart, meanwhile, has been snapping up smaller online retailers in recent months, most notably Jet.com, the company Walmart bought for $3 billion dollars last summer. Jet.com itself acquired Hayneedle and a Zappos competitor called ShoeBuy. And Walmart just last month bought outdoor retailer Moosejaw.

At the time of the Moosejaw deal, Walmart explained that it’s increasingly interested in the apparel category, given it’s now one of the largest for online retail, according to comScore.

Walmart rival Amazon has been expanding into fashion itself, and even everyday wear like workout clothing, bras, and men’s shirts.

Walmart Press Release
March 17, 2017 – As we continue to grow our e-commerce presence, Walmart has acquired the assets and operations of ModCloth, one of the top online specialty retailers of unique women’s fashion and accessories.

Here are the key facts about the deal:

What was announced today?

• We have acquired the assets and operations of ModCloth.
• The deal closed on March 17, 2017.

Who is ModCloth?

• ModCloth is an online specialty retailer that offers unique designs and exclusive fashion, along with shoes, handbags and accessories, for 18-35-year-old women.
• As one of the top specialty fashion sites with a strong social media presence and highly engaged community, ModCloth also operates one physical store in Austin, Texas, where customers can schedule one-on-one styling appointments with ModStylists®.
• ModCloth is widely acclaimed as one of the most inclusive fashion brands in the industry, pioneering the promotion of size diversity, lifestyle inclusiveness and body positivity over the last decade.
• ModCloth offers thousands of clothing and accessory items – including independent designers, national brands and ModCloth-designed private label apparel. The majority of apparel is offered in a full size range.
• Founded in 2002 in Pittsburgh, ModCloth has been headquartered in San Francisco since 2009. Additional offices are located in Los Angeles and Pittsburgh.

How will ModCloth fit into our e-commerce business?

• The ModCloth team will continue to operate its site and store as a standalone and complementary brand to our other e-commerce sites. The ModCloth team will bring their significant experience and unique talents to our U.S. e-commerce efforts and will further strengthen the collective capabilities of the overall team.
• Apparel and accessories is the No. 1 category for digital commerce, according to comScore, and we gain the experience of a well-recognized specialty apparel e-commerce brand that’s trusted by millions of millennial women.
• ModCloth’s catalog offers thousands of choices in clothing and accessories, including highly differentiated, exclusive styles and an extended range of sizes that appeal to a broad demographic of women. The compelling styling, branding and content currently available online, along with deep industry relationships and expertise, will help us further enhance our overall customer experience.
• ModCloth CEO Matthew Kaness, his executive team, and ModCloth’s 300-plus employees will continue to be based in San Francisco, Los Angeles and Pittsburgh, and will join our U.S. e-commerce retail organization.
• Designers that sell on ModCloth who are interested in expanding their consumer reach will now have the opportunity to serve more customers through Jet.com and our other e-commerce sites.

Jezebel first reported on the ModCloth acquisition, citing an anonymous employee source who recorded the all-hands meeting. We understand their report is accurate, and the leaked recording came from the meeting in Pittsburgh. Internally, the deal is being positioned as one that it will allow ModCloth to grow.

However, when the company talked about the cultural fit with Jet, many employees laughed, Jezebel’s report said.

ModCloth does seem like an odd fit for Walmart, even by way of its more youthful brand Jet.com.

Its clothing is popular among a certain type of young, female shopper – one who’s generally young, progressive and feminist, and shops according to those values.

Its brand in the past has exemplified these traits through its support for things like equal pay and equal representation in the workplace, as well as support for a wider range of sizes than often found in traditional retail. These efforts earned it many fans.

Walmart, however, tends to be viewed differently by this demographic, shall we say.

Sentiments of disappointment and disgust can be found on ModCloth’s public Facebook page.

Even if a portion of ModCloth’s base abandons it, Walmart has bought itself a good wholesale clothing business from a well-liked brand.

Founded in 2002 by Susan and Eric Koger, ModCloth had raised $78.7 million in funding from Norwest, Accel, First Round, Floodgate and others, according to data from CrunchBase.

Source: TechCrunch

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