Technology/Services

Wal-Mart Still Serious About Online

Purchase of Jet.com for $3.3 billion has big-box retailer stepping up pace against Amazon

BENTONVILLE, Ark. -- In a move that signals Wal-Mart’s resolve to stay in the online game, the big-box retailer announced that it has purchased Jet.com for $3.3 billion in cash and stock.

Touted as the biggest e-commerce buy in U.S. history, the deal may prove a decisive step in Wal-Mart’s ongoing journey to keep pace with online behemoth Amazon, according to pymnts.com. The website reports that Marc Lore, Jet.com’s top e-commerce executive, will come with the deal, replacing Neil Ashe, who joined Wal-Mart in 2012.

The purchase follows other moves into the online space, including the Bentonville, Ark.-based retailer’s construction of seven new distribution centers, its increase in e-commerce staff and the rollout of services such as its mobile-payment option Walmart Pay.

Comparatively, Wal-Mart’s e-commerce sales are about $14 billion or 3% of its $482 billion in annual revenue, while Seattle-based Amazon hit $107 billion in sales last year.

According to pymnts.com, Jet’s proprietary software sets customer choices against profitability of sale by factoring in shipping distance and basket size, which allows it to offer flexible discounting. What the Hoboken, N.J.-based Jet lacks is “the ability to build the billions in inventory and marketing it would need to really keep up with the Joneses over at Amazon,” the article said.

“We’re looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience, because that’s what our customers want,” said Doug McMillon, president and CEO of Wal-Mart Stores Inc. “We believe the acquisition of Jet accelerates our progress across these priorities. Walmart.com will grow faster, the seamless shopping experience we’re pursuing will happen quicker, and we’ll enable the Jet brand to be even more successful in a shorter period of time.”

The acquisition of Jet will infuse Wal-Mart with fresh ideas and expertise, as well as an attractive brand with proven appeal, especially with millennials, the first generation of true digital natives, Wal-Mart officials said in the statement. Among other things, Jet has:

  • Demonstrated ability to scale with speed, reaching $1 billion in run-rate gross merchandise value (GMV) and offering 12 million SKUs in its first year.
  • A growing customer base of urban and millennial customers, with more than 400,000 new shoppers added monthly and an average of 25,000 daily processed orders.
  • Best-in-class technology that rewards customers in real time with savings on items that are bought and shipped together, thereby reducing the supply-chain and logistics costs often buried in the price of goods.
  • A select group of more than 2,400 retailer and brand partners tailored to create an attractive, distinctive assortment for consumers.

“We started Jet with the vision of creating a new shopping experience,” Lore said. “Today, I couldn’t be more excited that we will be joining with Wal-Mart to help fuel the realization of that vision. The combination of Wal-Mart’s retail expertise, purchasing scale, sourcing capabilities, distribution footprint and digital assets—together with the team, technology and business we have built here at Jet—will allow us to deliver more value to customers.”

Wal-Mart and Jet will maintain distinct brands, with Walmart.com focusing on delivering the company’s “everyday low price” strategy, while Jet will continue to provide its differentiated customer experience with curated assortment.

Despite Wal-Mart’s online successes and disappointments, Walmart is not ceding the space to Amazon and has the resources to make big bets, including its commitment to the online grocery business, an area of recent expansion for Jet.com, said Rick Chavie, CEO of EnterWorks, a data-management solutions company based in Sterling, Va. “Jet.com has shown a path to acquiring customers, even if at a high cost, which makes it an obvious choice to grow Wal-Mart’s failing e-commerce offerings,” he told CSP Daily News.

“Achieving growth in e-commerce has always turned on the proposition that an online retailer gets in tune with customer preferences,” Chavie said. “There is no question the traditional Wal-Mart has a lot to offer in terms of price, assortment and geographic saturation throughout the U.S., and while its e-commerce has achieved some significant scale, it is not enough. Buying a company that has demonstrated how to accomplish outsized growth may be the answer, but it will take discipline not to grind it down to fit the Wal-Mart way.”

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