Why Did Walmart Buy Bonobos?

Why Did Walmart Buy Bonobos?

By Lee Peterson

In early June 2017, Walmart surprised the retail and fashion industries by making an unexpected $310 million cash bid for Bonobos, the wildly successful “digital-first” menswear site launched a decade ago. No brand has more enthusiastically embraced the innovative merchandising strategy known as showroom stores better than Bonobos.

The acquisition was a radical departure from the industry’s typical deal because Walmart didn’t buy the category-defying brand for its assets, or even its sales, but for a far less profit-driven reason: to learn. Considering Walmart is the largest retailer in the world, it was a humbling admission.

That’s one reason why we recently surveyed 3,000 consumers. We wanted to better understand the growing importance of showroom stores. The results were unequivocal: Showroom stores were viewed as the single most influential innovation driving purchase today. These definitive results motivated us to take an even closer look at the logic behind the Walmart Bonobos deal. To make sense of the outsized influence of this brand’s showroom strategy.

Bonobos calls its stores “guideshops,” but the term means the same thing as showroom stores. A guideshop is small, only about 1,500-square-feet. A place to go shopping without the hassle and drawbacks of traditional shopping. No wonder these inviting, buy-free boutique zones are usually nestled in restive commercial districts—tucked among coffee shops, scented-candle stores, and craft breweries. These are the hang-out zones of urban life. These are spaces where identity-formation and aspirational thinking dominates. Consumption happens, but it’s secondary.

This is the essence of a showroom strategy—creating a space where desire rises above need and necessity. This is what makes a showroom a showroom—delayed gratification, but gratification nonetheless.

Even with the recent acquisition, you won’t find a Bonobos shirt in any of Walmart’s locations. Bonobos wasn’t acquired by Walmart because the chain wanted to neutralize a competitive threat. This wasn’t an acquisition of some superior logistics system, and not a massive store footprint, either. Bonobos can’t compete with Walmart’s scale, but they have long beaten the chain in one key metric: sales per square foot, which is likely three times more than Walmart’s.

Walmart effectively bought a mindset, more specifically, co-founder Andy Dunn’s brain. Walmart has gained every nuance and proprietary insight into how to successfully run a showroom store, and make the digital-first model of brand building Millennials find most appealing work at scale.

To understand the logic behind this seemingly irrational acquisition, one must understand an even bigger one: Walmart’s $3.3 billion cash and stock takeover of Jet.com about a year ago. Jet.com’s founder Marc Lore didn’t take the money and run—he stuck around, and now oversees Walmart’s entire US e-commerce business in the U.S., and Dunn now oversees Walmart’s digital brands.

These strategic acquisitions weren’t just about assets, but mindsets, a means to jumpstart Walmart’s focus on a digit-first model. The influence of the showroom model will undoubtedly spur more innovation at Walmart. Showroom thinking is not just about apparel. For example, after the Bonobos deal, Walmart started Store No. 8, an internal venture focused exclusively on hatching new online retail businesses.

Walmart’s, if-you-can’t-beat-them-buy-them strategy, is starting to pay off. It recently reported online sales had jumped 60 percent, as more people shopped at Walmart.com, Jet.com, and its other websites. It’s embracing the showroom, digital-first model of Bonobos, and considering the Amazon threat, this can’t happen fast enough. It is, after all, the innovation consumers want now more than any other, according to our recent survey results.

Showroom stores aren’t just the merchandising strategy of the future, but the store of the future. This raises a critical question for any store brand still sitting on the showroom sidelines: If even Walmart is getting on board in a big way, what’s stopping your brand?

Lee Peterson
Lee Peterson
Executive Vice President, Thought Leadership, Marketing
WD Partners
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