Andy Dunn

Wal-Mart Stores Inc.’s acquisition of Bonobos is classic Goliath and David. But if that means Goliath swallowing up David, Bonobos founder Andy Dunn has different ideas.

Dunn, who sold his company in July to Wal-Mart Stores Inc. for $310 million, at Recode’s recent New York conference spoke candidly about his successes and failures, and how Bonobos — “certainly north of $100 million in revenue” — can thrive within the nearly $500 billion retailer.

“Is Marc the reason you’re [at Wal-Mart]?” said Recode’s Jason del Rey, who interviewed Dunn. “How’d you wrap your mind around [the Wal-Mart acquisition]?”

“Marc always struck me as someone with courage and candor, but I thought he cared about large platforms and not brands,” said Dunn, referring to Marc Lore, whose Jet.com was acquired by Wal-Mart for $3.1 billion, and who assumed the role of president and chief executive officer of Wal-Mart U.S. e-commerce.

“Marc said, ‘What would it take to get you?'” said Dunn, who replied he would want to build a collection of brands. “‘That’s what I want to do,'” Dunn recalled Lore saying.

At Wal-Mart, Dunn is overseeing Bonobos and the Modcloth acquisition, and all future digitally native specialty brands.

“So, by now, I’ve [personally] invested in 15-plus digitally native brands,” Dunn said. “We’re all trying to figure out the same things. My mandate now is, let’s win with what we’ve got. Wal-Mart has been making acquisitions since Jet.com. We’ve got to win. Make sure those two assets, Bonobos and Modcloth, do incredibly well. Then we’ll think of buying or building things. We’ll leverage the logistics of Wal-Mart. The real estate could be chopped up and converted. I don’t see it for Bonobos, but I see it for other brands. ”

Asked what Bonobos gets from its association with Wal-Mart, Dunn said, “I’m not sure what Bonobos gets…resources at a high level. Originally, I thought speed of shopping and the ability to get products to consumers more quickly. It’s the ability to leverage [Wal-Mart’s] massive supply chain and continue to innovate, and that’s where speed to consumer becomes huge. Especially, where you don’t carry product out from guide shops [Bonobos’ showroom-cum-stores] and that’s huge.”

Bonobos’ potential for growth is sizable, according to Dunn. “Our unaided awareness in New York may be 15 percent,” he said. “In Dallas submarkets, it’s 5 percent. Bonobos is a realistically sizable brand that the majority of people don’t know. We have a huge market to go get.”

Dunn did some Monday morning quarterbacking. “We had a nice option from private equity, but PE is too controlling,” Dunn said. Taking Bonobos public, was another possibility. “If we went the IPO route, Wall Street and shareholders only understand store expansion. It’s same-store sales and new stores. We don’t have to grow quickly.

“The one option I thought had the lowest probability for Bonobos was Wal-Mart,” Dunn said. “We built an asset that had gotten to scale. The operating profit thing was starting to happen. But our balance sheet at Bonobos was too small. We had no cash flow and we got cash burn. Then, along comes Wal-Mart. Wal-Mart has a good balance sheet.”

Bonobos operates 40 guide shops with an average size of 1,200 square feet. “We’ll continue to expand the guide shops, but we’ll be more methodical about it. We were going too fast. We were opening incremental stores in existing markets,” Dunn said, citing New York, which has six units. “We’re looking at Portland. Next year, we’ll open six, rather than 13 guide shops.

“It’s a weird time to be a retail company,” Dunn said. “If you’re not Nike or Under Armour or Chanel, it’s hard to be a couple million dollar company right now.” His advice to entrepreneurs, “Big vertical brand players all raised $100 million in capital,” he said. “You need to return $300 million to feel good about yourself.

“You need a reason for being, for why the digital brand is better,” Dunn said. “The only reason Bonobos is a success is because we have a different fit option.” Dunn said he sees Bonobos benefiting from its association with the mass merchant. “Wal-Mart is starting to build amazing technology. You’re starting to see it with Store No. 8, which is our incubator.”

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