24/7 Wall St.

When a behemoth like Walmart Inc. (NYSE: WMT) launches a new business, that typically means that the model for the new business has been tried and tested and that Walmart either thinks it has to be there or be square, or that there’s enough revenue at stake to make the effort worthwhile.

For one of those two reasons, Walmart announced today that it is partnering with Kidbox, a subscription-box company, to deliver up to six boxes of kids clothes a year to parents. There will be four or five items in each box, and the box will cost $48. Parents can order a single box or subscribe to receive up to six boxes a year timed to the four seasons, plus back-to-school and holiday boxes

If parents decide to keep the entire box, there are no additional charges. Parents can also return the entire box and get their money back. Walmart noted that the box items include a discount of about 50% off the suggested retail price. For every box sold, Kidbox will clothe a needy child through its partnership with Delivering Good.

The subscription model for clothes for women and men was verified by Stitch Fix Inc. (NYSE: SFIX), which went public in October 2017 and has a market cap of around $2.6 billion today. During the back-to-school shopping season last year, the stock price reached around $52 a share, around double today’s price. The company’s gross margin last year was nearly 44%, a level that Walmart would love to have, if for no other reason than to whittle it down to an amount where the giant retailer could make a profit and no competitor could.

Walmart has made several moves into the gaps left by the bankruptcies and store closures in babies and children’s apparel and gear. Toys “R” Us, Babies “R” Us and Gymboree closures have presented gaps that Walmart has moved relatively quickly to fill. The company has a curated collection of baby furniture, a dedicated toy portion of its website and now a subscription box service for kids. Walmart also has launched new shopping destinations for dance essentials and gymnastics, and licensed children’s clothing, making it easier for customers to shop for fashion apparel featuring top movie, TV and gaming characters.

Denise Incandela, head of fashion for Walmart U.S. eCommerce, said:

Over the last year, we have significantly expanded our portfolio of kids’ fashion brands as part of our broader effort to establish Walmart.com as a destination for fashion. Our partnership with KIDBOX enables us to round out our offering with additional national and premium kids’ brands.

Target Corp. (NYSE: TGT), Walmart’s main competitor in the brick-and-mortar world, sold some $2 billion in its store brand of kids clothes last year while Gap Inc. (NYSE: GPS) shut down its kids’ subscription box offering after a 14-month trial. Stitch Fix recently kicked off its own kids’ box subscription, and Rent the Runway is previewing rental boxes for children’s clothes.

Walmart stock traded up about 0.5% in the late morning Tuesday, at $102.95 in a 52-week range of $81.78 to $106.21. The stock’s 12-month consensus price target is $108.41.

24/7 Wall St.
Jefferies Analysts Love 5 Stocks That Other Wall Street Firms Hate