Beauty box brand Birchbox is reportedly in acquisition talks with retail giant Walmart, among other large companies.
Birchbox is a subscription-based service in which customers receive monthly boxes filled with various beauty products. The boxes can be personalized to offer customers the types of products they would like to see, as well as products that match their own personal looks.
The Birchbox company was founded in 2010 and has made upwards of $80 million in investments since then. In 2015, it also acquired a loan, though the amount received has not been specified. The loan is due to be paid back in early 2018, and Birchbox has reportedly received multiple offers to restructure it. These offers to restructure the loan should alleviate any pressure on Birchbox to sell their brand.
Despite these investments and loan, the Birchbox company did not see a fruitful 2016. They were so focused on tracking their growth that they failed to worry about their profitability, a mistake that is frequently fatal to e-commerce companies. This forced Birchbox to enact two rounds of layoffs. During the summer, their investors decided to throw them one last line with an investment of $15 million.
They have also been faced with several competitors in the last few years. One such competitor, another subscription-based beauty box called Ipsy, has been doing significantly better in U.S. market share than Birchbox has.Though some will argue that Ipsy and Birchbox do not provide the exact same service (Ipsy is for the already-established beauty product fiend, while Birchbox provides customers with a gateway into the beauty world), there is no doubt that Ipsy’s success has cast a shadow over Birchbox.
Birchbox’s co-founder and CEO Katia Beauchamp, along with its executive team, believe that if the company makes more of a conscious effort to focus on profitability instead of just growth and takes a loan restructuring deal, they will be able to remain an independent company.
Many think, however, that it would make more sense for Birchbox to sell.
Walmart seems to be one of Birchbox’s most likely would-be buyers. Though it is unsure how far any talks between the two companies have really gone, Walmart has been known to be quite the purchaser. Under their current e-commerce chief, Marc Lore, Walmart has acquired several online retailers, such as Bonobos, ModCloth, Jet.com, Moosejaw, Shoebuy.com and Hayneedle.com.
Walmart is trying to compete with e-commerce giant Amazon, so additional acquisitions will help them better match their opponent. The more products and services they can sell online the better.
They are also trying to attract a different population with their online ventures than with their own stores.
Since their Walmart stores have very low prices and can be found fairly easily, they tend to attract many lower- and lower middle-class shoppers. Acquisitions such as ModCloth, Bonobos and Birchbox, however, will help the Walmart company reach customers from the upper middle- and upper-class. These people have more money to spend on frivolities, such as name-brand or vintage clothes and beauty products.
The items sold on the online stores Walmart purchased are often sold for at least two times the price of items Walmart sells in their stores. A dress at ModCloth, for example, could range from $30 to $60, while a dress at Walmart would more likely be $10 to $25.
Because of these price gaps, these online acquisitions have helped to bring more revenue and traffic to the Walmart company, which will help in their competition with Amazon. Adding a brand like Birchbox to their growing list of acquisitions would just be another blow against Amazon, though Walmart may never actually win the fight. Amazon has been so successful since adding designer clothing to their offerings that they are projected to outdo Macy’s as America’s biggest seller of apparel. Walmart can take on as many e-commerce businesses as it wants, but it might never catch up to Amazon’s growing consumer base.
Featured image via Wikipedia Commons