Buying Jet.com would let Wal-Mart compete more effectively with Amazon.com and other online retailers.
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The deal values Jet at $3 billion, with Jet being paid $300 million Walmart shares over time, in addition to bonuses for Jet executives.
Yet Wal-Mart’s online division has struggled, posting its slowest growth in a year in the first quarter. Led by co-founder and CEO Marc Lore, along with fellow co-founders Mike Hanrahan and Nate Faust, Jet.com has positioned itself as one of the fastest growing e-commerce websites in the US.
Even as Walmart latches on to Jet – and its superstar e-commerce CEO – as a potential savior for its online sales woes, it may be looking in the wrong direction.
Wal-Mart has opened seven large distribution centers across the US and hired hundreds of e-commerce staffers. The Walmart and Jet.com sites will remain separate entities.
The Wall Street Journal had reported last week that Wal-Mart was poised to acquire Jet, so the deal likely did not come as a surprise to investors. However, Joseph Feldman, an analyst at Telsey Advisory Group, said, “Amazon should be concerned about what Wal-Mart is doing”. “As we believe “catching” Amazon online is an unrealistic goal for any brick-and-mortar retailer, Wal-Mart now has a definite leg up on its competitors in the very important race to be No. 2 online”.
The deal disclosed on Monday follows a five-year e-commerce acquisition spree in which Wal-Mart, the world’s biggest traditional retailer, has already bought 15 startups, seeking the talent and technology to make it a dominant player online and narrow the massive gap with market leader Amazon.
The decision to run Jet as an independent website is a good step because it can stay focused on growth, but the price Wal-Mart paid is high, UBS retail analyst Michael Lasser said in a note to clients.
The acquisition will help Wal-Mart grab a higher-income customer who typically is younger than its own shoppers.
Lore previously sold his Diapers.com business to Amazon in 2010 for over $500 million.
Since its launch, Jet’s business has grown dramatically, adding more than 400,000 new customers every month and processing an average of 25,000 orders per day. It is built on a real-time pricing algorithm that determines which sellers are the most efficient in value and shipping and adjusts prices based on what items are in the checkout cart, as well as how far the desired products are from the shopper’s home. For Jet.com, which has been pouring money into splashy TV ads and other marketing, it will provide big financial backing.
Lore cited the benefits of Wal-Mart’s purchasing scale, sourcing capabilities, distribution footprint and digital assets together with Jet.com’s team and technology. The company, which touts its service, delivers to two-thirds of the country overnight in its purple boxes.
Lore has said the idea for Jet was grounded largely in his lessons from Quidsi.
In its fiscal year ended in January, Wal-Mart had online sales of $13.7 billion, a fraction of its total revenue of $482.1 billion.
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Walmart just spent billion on Jet.com, a move that is expected to help boost its lagging e-commerce sales. It also recently expanded the pilot of ShippingPass, a membership program that offers free two-day shipping on all purchases and is widely seen as an answer to Amazon Prime. Wal-Mart also started an annual subscription service similar to Amazon Prime, but costing half the price.
