How Walmart is building a defense against Amazon with a network of exclusive brands

Right now, all eyes are on Walmart’s acquisition strategy with this week’s purchase of online plus-size women’s retailer Eloquii. But there’s more happening beneath the surface than just buy, buy, buy.

With a web of acquired, incubated and private-label brands, the retailer is building out a multi-pronged merchandising approach. The idea: An umbrella of exclusive brands will give customers reason to shop with Walmart, instead of other competitors, including, and perhaps most importantly, Amazon.

This way, Walmart also positions itself as a more compelling retail partner to brands to sell through its platform. A customer shopping for Eloquii will have a different experience than someone visiting a Walmart store, and the company intends to keep those separate.

But the goal is that brand acquisition will act as a foot in the door for customers who wouldn’t typically shop at Walmart, and get them in front of the retailer’s private-label brands. As Amazon, Target and Walmart all compete on differentiated inventory, private label has evolved beyond brand-name knockoffs to become a more important piece of the merchandising pie than the days of national brand knockoffs.

Walmart is using pages from its acquired DTC brands’ playbooks to build out a portfolio of private-label brands that are meant to win over customers not just because they’re a cheaper alternative to another product, but because they’re valuable on their own. Right now, Walmart is targeting two categories that Amazon’s already made progress in: bedding and apparel. In February, it launched four new private-label apparel brands — a women’s line, a plus-size line, a men’s collection and a kid’s brand — all trendier and more heavily marketed than the generic white-label offerings of the past. The same month, Walmart introduced Allswell, a bedding and mattress brand that’s sold only online, through its own website.

“There are Walmart made and owned brands, but they’re not just cheaper, comparison products,” said Jason Goldberg, the svp of commerce at SapientRazorfish. “These new products are marketed toward a specific customer that right now, Walmart isn’t reaching. What we’re seeing is a transition from traditional private label to owned brands that serve different purposes.”

Before Eloquii, in 2017, Walmart acquired women’s fashion brand Modcloth and men’s brand Bonobos. More than just gaining outlets for chinos and dresses, Walmart gained access to each brand’s audience network. These direct-to-consumer brands built their businesses on top of close relationships with their customers, explained a Walmart representative, by designing product and brand positioning specifically with customer feedback in mind.

Down the line, a collection of exclusive brands with built-in affinity puts Walmart in a better position to defend itself in an increasingly competitive e-commerce landscape.

“At some point in the future, what you’ll find is that there’s going to be parity, maybe not 100 percent parity, but parity in terms of the assortment you will find at major retailers online,” said a Walmart representative. “So at that point, what’s going to be compelling is offering differentiated or exclusive assortment that customers can’t find anywhere else.”

Each piece of Walmart’s merchandising puzzle indeed serves a different purpose. The private-label apparel brands show in-store customers that the company’s merchandise is evolving and the quality is improving. The acquired brands bring in foot traffic and — hopefully — brand loyalty from non-Walmart customers. In other cases, it also brings in category expertise in areas that are difficult to own: Shoes.com, an online footwear retailer, and Moosejaw, an outdoor retailer, aren’t trendy DTC brands, but they do have category relationships and expertise that Walmart can’t compete with on its own. Then there’s Allswell, a brand born and raised by Walmart but sold only online in the same fashion as a direct-to-consumer brand. Tie it all together with Jet.com, an online marketplace targeting city-dwelling millennials, and Walmart has a diverse in-store and online brand army that gives customers many different places to put their money, few of which that are blatantly associated with the Walmart name.

“Walmart, having more customer touch points to expose these products and brands to people, are in a position to use both owned and acquired brands and private-label brands as a competitive advantage,” said Goldberg. “But it gets tricky — Walmart has to keep an arm’s distance to protect the brands it buys, lest they become ‘Walmart brands.’ They have to be able to make that a positive thing.”

Bonobos founder and Walmart svp of digital Andy Dunn has said that while there was some backlash following the news that the brand was acquired by Walmart last year, the brand bounced back in about two weeks after the announcement. While it’s too early to tell just how much the brands Walmart has acquired are flourishing under their new leadership, their performance will be telling: If Walmart burns the brands it buys, it will close off an increasingly important business opportunity to bring more companies into its fold. Without those brands, the halo effect that the customer entry point has down to Walmart’s private-label businesses will no longer exist.

Essentially, to win, Walmart has to play nice with brands, a decidedly un-Amazon approach.

“Brands, historically, would shy away from being associated with Walmart, so the best thing Walmart has done is give brands, and customers, a variety of ways to work with or shop it,” said Cooper Smith, an Amazon analyst at Gartner L2. “Brands want an alternative to Amazon.”

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