Black Diamond Snafu Highlights Critical Gap In Walmart Strategy

In skiing, black diamonds are treacherous. They are often the toughest runs on the entire mountain. It is only fitting then that Black Diamond should be the name of the first company to hit back publicly against Walmart’s strategy to augment Walmart’s brand portfolio via acquisition.

This week Black Diamond, a company that specializes in the manufacturing of innovative skiing and mountain climbing equipment, sent out a cease and desist letter to Walmart, in response to the launch earlier this week of Walmart’s new “Premium Outdoor Store Created by Moosejaw” on Walmart.com.

In a company press release, Black Diamond stated that it had asked Walmart to “cease and desist use of the Black Diamond® and diamond logo trademarks in a manner likely to confuse consumers into believing that Walmart is an authorized dealer of Black Diamond or that the new outdoor Walmart.com site is otherwise associated with or sponsored by Black Diamond.”

Black Diamond President, John Walbrecht then added additional color to the statement saying, “We did not see or approve the statement which Walmart released Monday and have never sold to Walmart. . . Black Diamond remains committed to our specialty retail partners and we do not plan on deviating from this strategy.”

What we have hear is a case of flawed logic.

If you remember, Walmart acquired Moosejaw last year for a reported $51 million. Moosejaw, along with Walmart’s other acquisitions, like those of Bonobos, Modcloth, and more, was done under the belief that Walmart could buy its way into a larger, higher-end product assortment.

Sounds smart and simple, right?

Wrong.

Buying a retailer that sells brands is not the same thing as buying a brand or even the distribution rights to that brand.

The strategy is flawed logic.

For Bonobos? Fine. Now Walmart has a slightly more upscale men’s brand. I could argue, big deal, but at least the logic is sound.

Moosejaw is different though. Moosejaw isn’t a brand. It is a retailer. A retailer who sells a range of brands.

For $51 million, Walmart didn’t buy the right to distribute the brands (those rights reside with the brands). It bought the Moosejaw storefront. Once Walmart put Black Diamond on Walmart.com, Black Diamond, in my opinion, had the right to come out publicly the way it did.

Generally, there are reasons why brands forgo certain points of distribution, so Walmart thinking it can just buy another retailer and bring the items sold by that retailer onto its website, when it hasn’t been able to secure distribution of those items in the past, is a pretty big gap in logic, like the size of the Grand Canyon big.

The flaw in the logic is especially prevalent when the brands at issue are premium products. Premium brands build their cachet based on the principle of scarcity. This “scarcity” affect can take many forms, and it is also what enables premium brands to secure a price premium over other products in the market.

Premium brands want to protect their price premiums at all costs. Suddenly flooding the mass market with premium products is not generally something premium brands want to do because it hurts their cachet, deteriorates their price leadership, and often times, even hurts their ability to meet the needs of their consumers because it also generally requires a sizable increase in production, something lower volume, premium brands may not be able to handle.

Walmart is the biggest retailer in the country. It has been around for a long time. Its brand perception is based almost entirely around low prices. As a result, many high-end premium brands and, rightly so, are likely cautious of distributing their products on Walmart, whether it be via Walmart stores or via Walmart.com.

I say this too because I have lived it. I have been on the side of the table trying to sell higher-end, premium brands into my assortment. One CEO, whom I respect greatly, even said to me once, “Sugar, I will have to be dead and in my grave before I distribute my product to you. It is just not right for our brand.”

Therein lies the problem. Walmart can’t escape its brand connotations, especially on price. Amazon has some of the same problems too, but Amazon has a wider assortment already because its brand isn’t so much about price as it is about a friction-free consumer experience.

Retailer acquisition as a means to assortment growth is, therefore, a strategic road to nowhere for Walmart because premium brands have many reasons to reject Walmart (namely, price perception) and because they also have a number of other better outlets with which to hit the mass market. Amazon is one, perhaps, but so too eventually is the marketplace of Facebook, where the retail brand is not so much the brand of Facebook but the brand of the individual consumer or vendor within Facebook’s marketplace. The long-term difference between what Facebook can offer and even what Amazon can offer is just too big for Walmart to overcome in regards to the higher-end, long-tail assortment that Lore and Walmart covet so much.

At the end of the day, Walmart just cannot escape its history. As it is for many, it is Walmart’s biggest cross to bear. Our history is what makes us who we are, which is why I spoke out against Walmart’s JetBlack initiative in July, have been critical of the expanded assortment move numerous times over the past year, and now even applaud Black Diamond for being the first to say “no” to Walmart’s latest end-and-around.

Borrowing the ski analogy one last time, I expect this to be the first of many moguls Walmart will encounter if it continues its run towards a higher-end assortment. The opportunity is not really there.

Black Diamond may have just paved the road for more of what is to come in the future.

 

Credit:

Chris Walton

www.forbes.com

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