Walmart Acquires Jet: Which Company Will Benefit More?
If you have ever used their website, it’s easy to conclude that Amazon has everything.
That’s what people used to say about Walmart.
The evolution of retail away from brick and mortar businesses and toward online shopping has found many top retailers, including Walmart, struggling to keep up with the trend.
But with its purchase of online bulk retailer Jet, the world’s largest chain of discount department stores is trying to jump-start online sales, which now average a sluggish two to four percent in annual growth.
Jet uses a complex formula to offer items at 10 to 15 percent less than competitors by adjusting prices based on the quantity of products bought at once. The objective is to encourage bulk buying through escalating discounts.
“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. We believe the acquisition of Jet accelerates our progress across these priorities,” said Walmart CEO Doug McMillon. “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. Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Walmart.”
This is the largest deal ever for an ecommerce company, and on paper there are some legitimate questions about whether Walmart overpaid. Jet has barely been in business for one year, and had to drop its annual $50 membership fee to build a customer base. As a result, it has been losing money on every product shipped. Without outside help, Jet founder Marc Lore predicted that the company would not achieve profitability for another five years.
However, Jet had significant attributes that Walmart desired. The first was Lore himself, a veteran ecommerce entrepreneur who has founded such successful ventures as Quidsi, Diapers.com and Soap.com. The hope is that Lore, who will take over responsibility for Walmart.com in the United States, can bring some of his innovation to Walmart’s online presence.
In addition, the retail giant will also boost its potential customer base, with access to the more than 400,000 new shoppers added every month at Jet.com—most of them younger and urban, two demographics not presently associated with Walmart.
The company’s product line will also be expanded with a select group of Jet’s 2,400 retailer and brand partners, and will be able to offer customers better deals thanks to Jet’s real-time reward promotions on products that are bought and shipped together. That can add up to significant savings in supply chain and logistics costs.
Jet, which will remain a separate entity after the merger, can look forward to boosting its own logistics capabilities, by turning Walmart’s 10,000 stores into distribution centers. It will also benefit from the retailer’s global scale and prominent name recognition.
However successful the collaboration proves, both parties know that the best they can hope for in online retailing is, to borrow a term from the Olympics, a silver medal. Amazon is not going to be caught. Jet.com had 12 million items for sale online and Walmart had 10 million; Amazon has about 365 million items. Walmart does about $15 billion in online business, while Amazon tops $100 billion and is still growing 20 to 30 percent every year.
But in a market this vast and lucrative, even second place sounds pretty good.