Wal-Mart (NYSE: WMT) recently acquired Bare Necessities, a 20-year-old retailer, underwear, swimwear, knitwear and other intimate apparel, with undisclosed terms. Wal-Mart said that Bare Necessities will operate independently, but it will eventually sell its products on the e-commerce sites Walmart.com and Jet.com, which were purchased two years ago.
The acquisition will also complement Wal-Mart’s previous apparel acquisitions, including women’s clothing site ModCloth, men’s clothing site Bonobos, footwear and accessories retailer ShoeBuy and outdoor retailer Moosejaw. It may also hit Amazon (NASDAQ: AMZN) and the expansion of its own brand in the apparel market.
However, Wal-Mart decided to expand into underwear, which is very interesting because it is an unpredictable, fragmented market with high growth potential. According to Zion Market Research, the global underwear market may grow from $38.2 billion in 2017 to $59.2 billion in 2024, making it a high growth point for the commercial apparel market.
Let’s see if Wal-Mart’s bet on naked necessities will pay off.
Take a closer look at Bare Necessities
Bare Necessities calls itself “the largest online specialty retailer of lingerie.” It offers “more than 80 of the world’s best-known bra brands, an unbeatable range of sizes (28 to 56 and AA to O),” as well as a variety of swimwear, corsets, sexy lingerie, pajamas, sportswear, panties, knitwear and Men’s underwear. ”
Bare Necessities is privately held, so it does not regularly disclose its income or earnings. However, the company revealed that it generated $66 million in revenue in 2012. Before being acquired by Wal-Mart, ModCloth, Bonobos and Moosejaw both generated about $100 million in annual revenue, so it is reasonable to assume that Bare Necessities is approaching the same threshold.
Wal-Mart’s pond price has fallen by $100 million and is expected to reach $516 billion this year. However, according to eMarketer, Bare Necessities’ online platform will represent a meaningful expansion of Wal-Mart’s global e-commerce platform, which generated revenue of $18.85 billion in 2017, accounting for 4% of its revenue. The acquisition and ModCloth will strengthen Wal-Mart’s market share in the women’s wear market – a tough market for supermarkets and department stores.
Look at the game
Wal-Mart’s major moves to women’s fashion and intimate apparel may hurt Target (NYSE: TGT), which is known for selling younger and more fashionable clothing. Target offers a wide range of undergarments, underwear, knitwear and swimwear, including “naked” skin tones, and has recently expanded tones in a variety of shades.
Wal-Mart’s acquisition of Bare Necessities may also cause L Brands (NYSE: LB) Victoria’s secret to be a headache, a market leader in the troubled underwear market. Bare Necessities does not carry Victoria’s secret products, mainly sold in the brand’s first-party stores.
Last quarter, L Brands reported that Victoria’s secret total box office fell 1% or 5% on a store-only basis (excluding direct-to-consumer channels). Wal-Mart’s support can help Bare Necessities grow faster and bring more pain to L Brands in the next few years.
The expansion of Bare Necessities may also cause problems for American Eagle Outfitters (NYSE: AEO) sportswear and lingerie brand Aerie, which is known for its “anti-Victoria secrets”, which include various shapes and The size of the model. Aerie’s share price rose 27% last quarter due to strong demand for clothing, bras, underwear and swimwear. Bare Necessities emphasizes that the “unparalleled” range of sizes may appeal to those who are attracted to Aerie’s active marketing activities.
But it may target Amazon
Wal-Mart’s move may indirectly affect Target, L Brands or AEO, but the company’s real goal is to fight against Amazon. According to TJI Research, Amazon sells more than 120 proprietary brands, with apparel accounting for a large percentage.
Coresight Research estimates that Amazon sells nearly 5,000 of its own branded apparel, including Paris Women’s Wear, Aurique Sportswear and Iris & Lilly Underwear. That’s why Morgan Stanley expects Amazon to surpass Wal-Mart this year as the top apparel retailer in the United States.
Wal-Mart may have purchased Bare Essentials in response to Amazon’s phenomenal growth in the apparel market. It is unclear whether Wal-Mart can control Amazon, but investors should expect retailers to annex other small clothing retailers to expand their moat.
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