On the surface, the small $51 million acquisition Wal-Mart (NYSE:WMT) just made to help bolster its e-commerce division should be of little concern to American Outdoor Brands (NASDAQ:AOBC), but a closer inspection suggests it could threaten the gunsmith's plans to branch further out into the outdoors recreation market.

Although the $40 billion market gives American Outdoor a big target to shoot at as it diversifies away from firearms, the purchase of Moosejaw by the retail giant indicates it's may be a tougher slog to achieve its goals than perhaps previously thought.

Camping in the mountains during winter with snow on the ground

Image source: Moosejaw.

Wide open spaces

The active outdoors market is in a state of upheaval at the moment, with Gander Mountain reportedly on the brink of declaring bankruptcy, troubled Cabela's trying to get bought out by Bass Pro Shops, and other outdoor athletics-oriented retailers like the parent of Eastern Mountain Sports, Sport Chalet, and Sports Authority actually going bankrupt. While the shakeout will leave a few, more financially fit retailers in place, such as Bass and Dick's Sporting Goods, it shows the specialty market is scrambling and struggling.

American Outdoor Brands is also stumbling over the slowdown in firearms demand. While it has been reporting record sales for several years running, and when it reports fiscal 2017 third quarter results early next month it will probably do so again, the anticipation that gun buyer demand is set to fall off a cliff has caused its stock to lose a third of its value over the past six months.

Branching off into the rugged outdoors market by making several acquisitions of its own is seen as a smart and timely transition for the gunmaker, where firearms sales still account for most of its revenue. But a retail landscape that's in turmoil and now a bigger, widely available competitor makes American Outdoor's efforts all that more challenging.

A crowded space in the great outdoors

Moosejaw was founded in 1992 and is perhaps best known for its relationships with apparel brands such as The North Face, Patagonia, Marmot, and Arc'teryx, but it carries over 400 brands and also has an extensive collection of hiking, camping, and backpacking gear that aims squarely at the audience American Outdoor Brands is going after. In fact, it's a company American Outdoor could very well have purchased itself and was very much in the price range of companies the rugged outdoors retailer has already bought.

Man carrying a canoe overhead while walking beside a river

Image source: Patagonia.

It's also one that ought to worry Vista Outdoor (NYSE:VSTO). Situated similarly to American Outdoor with a focus on outdoor recreational activities and shooting sports, Vista reported its own third-quarter results that saw organic sales fall 5% year over year forcing it to engage in heavy promotional activity just to support the sales effort and maintain its market share.

Outdoor products account for 46% of Vista's total revenues, and though sales rose 24% from last year, that was solely due to making the acquisitions of Action Sports and Camp Chef. Organic sales were down from the year-ago period, as were organic profits.

It must also be nervous about the plight of the outdoors recreation market, as it sells its products through retailers that include Bass, Big Rock Sports, Cabela's, Dick's, Gander Mountain, REI, Sportsman's Warehouse, and Wal-Mart. Further consolidation or failure will limit where it can sell its goods.

Out of sight, out of mind

But as much of a challenge as it is to these outdoors-gear retailers, Wal-Mart's acquisition of Moosejaw is mostly seen as an effort to confront the threat Amazon.com (NASDAQ:AMZN) presents. Having also purchased e-commerce retailers Jet.com and then online footwear retailer ShoeBuy, the retail king is bulking up its e-commerce efforts, and the early results are paying off.

Man hiking in the wilderness amid tall grass

Image source: Moosejaw.

In its just-released fourth quarter earnings report, Wal-Mart said U.S. e-commerce gross merchandise volume jumped 36% from last year on the strength of its acquisitions, and analysts have praised the retailer's overall performance as the best it's recorded in several years.

In announcing its latest purchase, Wal-Mart said, "Moosejaw suppliers that are interested in expanding their consumer reach will now have the opportunity to serve more customers through Jet.com and our other e-commerce sites."

That shows where American Outdoor and Vista need to bulk up their own efforts to keep their rivals at bay. It may be the two outdoors-gear retailers don't even cross Wal-Mart's mind, but the outcome could be the same and it doesn't mean either can ignore the real threat from this small rival's acquisition.