Recent moves by Walmart to compete with Amazon.com for online shoppers could make life more challenging for mid-sized e-commerce players, such as Vancouver’s Shoes.com – but that competition could also make them takeover targets, say analysts.
Walmart (NYSE:WMT) announced January 5 that it had shelled out US$70 million to buy Shoebuy.com – a move that many interpreted as a shot across the bow of Amazon.com (Nasdaq:AMZN), which operates the shoe e-commerce division Zappos.com.
Zappos stopped shipping to Canada in 2011 but has a foothold on a sizable chunk of the U.S. online shoe market.
Walmart would not reveal how much Shoebuy generates in annual revenue, but the magazine Internet Retailer, in 2013, estimated its sales to be around US$315 million.
That’s a similar size to Vancouver’s Shoes.com, given that its CEO, Roger Hardy, told Business in Vancouver in mid-2015 that his company had an annual revenue run rate of $320 million, and that he aimed for that rate to rise to $1 billion by 2020.
The company has since stopped giving revenue projections.
Shoebuy will be part of Walmart’s Jet.com e-commerce subsidiary – a venture that Walmart bought in September for US$3.3 billion.
The Shoebuy acquisition is also expected to be part of “more than US$1 billion in global e-commerce initiatives” that Walmart will make in 2017, according to the big-box giant’s 2016 annual report.
“Walmart could crush almost any competitor if they wished to do so,” said Retail Insider Media owner and retail analyst Craig Patterson. “If Walmart is serious about these e-commerce acquisitions, and you would think that they would be, then all online players should be concerned.”
Walmart’s dominance as the world’s largest retailer is based on its US$482.1 billion in revenue during the 2016 fiscal year, which ended last January.
Its earnings reports do not break out overall e-commerce sales, but estimates based on eMarketer data peg total sales at US$13.5 billion, or less than 3% of Walmart’s overall sales.
In contrast, Amazon.com generated US$128 billion in the four quarters up until November, with the lion’s share of that revenue coming from e-commerce.
Amazon.com also has the edge on Walmart when it comes to market capitalization – a company’s total market value – which can provide a key measure in determining whether a target company is worth being bought for shares instead of cash.
Amazon.com market capitalization is US$378.2 billion, or about 80% more than Walmart’s US$209.7 billion value.
The revenue and market capitalization metrics combine to make clear that investors value online sales much more than bricks-and-mortar sales in determining a company’s worth.
DIG360 retail analyst Raymond Shoolman suggested that both Walmart and Amazon.com could be interested in buying Shoes.com as a way to buttress their online-shoe-sale market share.
“Walmart is sending out a signal that they are developing their e-commerce business and most recently they’ve chosen to focus on shoes,” he said.
“They’ve overhauled their software systems for e-commerce and they’re really serious about competing. They’re worried about prospects for their bricks-and-mortar business in the next five to 10 years.”
Shoes.com, meanwhile, has started to open bricks-and-mortar locations, such as one on Burrard Street near Robson Street.
It has contracted out much of its warehouse needs so its staff count has fallen to about 200 today from about 650 in 2015.
Shoes.com president Brad Wilson told BIV that he did not think Walmart’s Shoebuy acquisition would affect Shoes.com much.
Walmart’s acquisition is a continuation of consolidation in the online-shoe-selling sector.
Shoes.com has its roots in Hardy simultaneously buying Vancouver’s Shoeme.ca and Seattle’s OnlineShoes.com in mid-2014 and running the companies under one umbrella.
In December of that year, he bought Shoes.com, which was then the online division of St. Louis-based Brown Shoe Co. (NYSE:BWS).
Hardy then merged all the brands in 2015.
His penchant for acquisitions was also on display when Shoes.com bought socks manufacturer Richer Poorer in late 2015.