Walmart subsidiary Jet.com to buy ModCloth for less than $75m

Online fashion retailer ModCloth, known for its vintage-inspired and indie apparel, is on the verge ofbeing acquired by Walmart, by way of its subsidiary, Jet.com. The deal, which had already been rumored, is almost finalized andwill fetch a price tag between $50 million and $75 million, sources tell TechCrunch.

This is a disappointing outcome for ModCloth, which had raised $78 millionfrom 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.

The acquisition comes after a series of struggles for ModCloth, including several rounds of layoffs. The company saw littlegrowth in 2014, and reduced its engineering team to just over half a dozen. In 2015,co-founder and CEO Eric Kroger was replaced byMatthew 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 inAustincarrying 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, Bloombergreported.

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 ofGlassdoor reviews, the CEO and exec team weretaken to task for theirdecision-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 Hayneedleand a Zappos competitor called ShoeBuy.And Walmart just last month bought outdoor retailer Moosejaw.

At the time of the Moosejaw deal, Walmart explained that its increasingly interested in the apparel category, given its 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 mens shirts.

Jezebel first reported on the ModCloth acquisition, citing an anonymous employee source who recorded theall-hands meeting. We understand their report is accurate, and the leaked recordingcame from the meeting in Pittsburgh. Internally, the deal is being positioned as onethat it willallow ModCloth to grow. However, when the companytalked about the cultural fit with Jet, many employees laughed, Jezebels 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 whos 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 assupport 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.

Already, members of a ModCloth fan Facebook group are complaining and lamenting about this news in their online discussions. Many are vowing to never shop ModCloth again, as a result.

Sentiments of disappointment and disgust can be found on ModCloths public Facebook pageand in Jezebels comments.

Even if a portion of ModClothsbase abandons it, Walmart has bought itself a goodwholesale clothing business from awell-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.

Walmart and ModCloth declined to comment.

Additional reporting: Ingrid Lunden

Read more: https://techcrunch.com/2017/03/16/walmart-subsidiary-jet-com-to-buy-modcloth-for-less-than-75m/

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