Walmart Jumps on the Clothing Subscription Bandwagon

MarketsMotley Fool

Walmart (NYSE: WMT) recently partnered with KIDBOX to launch a new subscription apparel service for kids. The service will offer four to five pieces of curated apparel for $48, which represents a discount of about 50% for the bundled items. Customers keep the clothing they want and return the rest, and shipping is free for both deliveries and returns.

To sign up, parents fill out a short quiz and choose between on-demand deliveries or automatic shipments of up to six boxes per year. Unlike Stitch Fix (NASDAQ: SFIX), Walmart won't charge "styling fees" for curating the boxes. KIDBOX will also match each purchased box with a clothing donation to a child in need.

Continue Reading Below

Walmart's decision to launch a clothing subscription service isn't surprising, since other retailers recently launched similar platforms to challenge Stitch Fix. Will Walmart's focus on kids' apparel set it apart from the competition?

Another piece of Walmart's e-commerce strategy

In recent years, Walmart has acquired a long list of e-commerce companies, including Jet.com, Shoes.com, Moosejaw, Modcloth, Bonobos, Parcel, Flipkart, Cornershop, Eloquii, Bare Necessities, and Art.com, to widen its moat against Amazon.com (NASDAQ: AMZN).

It has also matched Amazon's prices, offered competitive shipping and pick-up options, increased the number of products sold online with third-party sellers, and tethered its online marketplace to Alphabet's Google Assistant devices.

Walmart's focus on digital growth is paying off. Its U.S. e-commerce revenue rose 40% in fiscal 2019, and it anticipates another 35% growth in fiscal 2020, which started on Jan. 31. However, Walmart's e-commerce revenue still accounts for only a sliver of its annual sales, and the retail giant will probably control less than 5% of the U.S. e-commerce market this year, according to eMarketer, compared to Amazon's 47% share.

Clothing subscription boxes were once a niche concept, but they're gaining traction with mainstream shoppers. Stitch Fix's revenue rose 25% annually last quarter as its active client base grew 18% to 3 million. Walmart is launching subscription boxes with KIDBOX to tap into that growth and keep pace with Amazon, which launched its own clothing subscription service, Prime Wardrobe, for its U.S. Prime members last year.

Strengthening its apparel business

Selling KIDBOX boxes could also strengthen Walmart's children's apparel business. Walmart.com added over 100 new kids' brands last year, including Betsey Johnson, Kapital K, Levi's, Limited Too, and The Children's Place. It also offers private-brand kids' merchandise like Wonder Nation and Athletic Works.

To reach a wider range of kids, Walmart has expanded its range of sizes, added more licensed apparel featuring movie, TV, and video game characters, and launched dedicated sections for dance and gymnastics apparel.

During last quarter's conference call, Walmart CEO Doug McMillon noted that the company made "quality improvements" in apparel with its new private-label brands, while CFO Brett Biggs stated that the company was "working with a great sense of urgency to increase sales in key areas like home and apparel."

But it's just a side bet for now

KIDBOX's clothing subscription boxes might strengthen Walmart's e-commerce and apparel businesses, but the partnership doesn't include an investment from Walmart. That's unusual, because the company has previously bought out numerous smaller e-tailers.

This indicates that Walmart isn't ready to go all-in on clothing subscriptions yet and that it prefers to supply just the clothing and have KIDBOX handle the logistics. That's a smart move, because Walmart's operating margin is already being weighed down by rising logistics expenses related to its ongoing e-commerce push against Amazon.

KIDBOX doesn't disclose its number of active clients like Stitch Fix. However, it has an active "community" of 1.5 million members, which include Facebook fans and email subscribers. KIDBOX still faces a growing number of competitors, including Rockets of Awesome, a rival service which attracted a $12.5 million investment from Foot Locker earlier this year, and new kids' clothing lines at Stitch Fix and Amazon Prime Wardrobe.

For now, apparel subscription boxes remain an experimental side bet for Walmart, and the new KIDBOX partnership will enable it to test the waters.

10 stocks we like better than Walmart Inc.When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Stitch Fix. The Motley Fool has a disclosure policy.