Wal-Mart: High-Fashion or Faux Fashion?

It seems that Wal-Mart is making a run at a new e-commerce retailer every week. Inside of a year’s time, it scooped up Jet.com, followed by acquisitions of Shoes.com (renamed ShoeBuy.com), MooseJaw, and ModCloth. And today it was announced that Wal-Mart purchased Bonobos, the men’s online clothing retailer, for $310 million. All of these brands are considered “hip” and draw loyal customers.

One could surmise, based on all of this activity, that digital chief Marc Lore, who came to Wal-Mart in its acquisition of Jet.com last year, realizes traditional brick-and-mortar isn't enough anymore.

Wal-Mart's strength has long been its appeal to budget-conscious customers, while Amazon's customer profile is shaped largely by those with higher incomes. In an attempt to keep up with Amazon, the shining star of retail at the moment, Wal-Mart is using these acquisitions to broaden its brand appeal to higher-end customers

According to Retail Pulse data from Frank N. Magid Associates, of people who earn more than $75,000 a year, 58 percent regularly shop on Amazon while 46 percent shop at Wal-Mart.

Of those who make $75,000 or less, Wal-Mart is the clear choice, as 62 percent of this group shop with the retailer. The split becomes more apparent in the apparel category. Of people who spent more than $500 on clothing over the past six months, 16 percent chose Amazon compared to 5 percent who chose Wal-Mart.

Amazon is gaining market share across all verticals, and competitors, including Wal-Mart, are trying to evolve their retail offerings, particularly in higher income brackets. In the past, high-end brands have been very fragmented, but Wal-Mart's concern is that Amazon is the largest single entity capable of addressing high-end users. Competitors fear that the brand perception of Amazon as the destination for more sophisticated customers could trickle down to people with more modest incomes, threatening to make inroads with Wal-Mart's traditional customer base. One indication that it is already happening is Amazon Cash, which the online retailer launched to appeal to “unbanked” customers.

A quick look at Wal-Mart customers reveals just how large the low-income shopper segment is and how important they are to the retailer. In the apparel category alone, Magid's Retail Pulse found that 23 percent of all dollars spent at Wal-Mart come from individuals making less than $25,000 a year. While a large portion of this audience has good credit, the largest proportion of "underbanked" customers fall within the under $25,000 segment. This customer segment has been critical to Wal-Mart’s ability to stay competitive with Amazon because they tend to prefer the in-store experience rather than shopping online, which requires the use of a credit card. However, with pressure from Amazon and a crumbling brick-and-mortar market, Wal-Mart needs to adjust.

As Amazon looks to make waves among low-end consumers, Wal-Mart needs to entice the loyal customers of the high-end brands it has acquired. Wal-Mart can expand to attract higher-income customers with a more diverse retail offering in apparel. While shoppers might not see the Wal-Mart name as trendy, if the company continues to pick up these smaller, niche fashion retailers, that perception will change.

Matt Sargent is senior vice president of retail at Frank N. Magid Associates.