It has not said what it spent on those acquisitions, but prior to this deal disclosed a total of $3.1 billion for e-commerce and digital projects, such as its platform and new warehouses, in the four fiscal years to January 2017.
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The deal announced Monday marks a major move for Wal-Mart, which is realizing that it needs to compete more aggressively in the online world. “It’s another jolt of entrepreneurial spirit being injected into Wal-Mart”. More importantly, through this acquisition Walmart will be able to tap into Jet’s innovative leadership team to build its own e commerce segment.
“The impact on Amazon will be fairly benign”. However, we believe it will not fulfill Wal-Mart’s dream as taking down Amazon is rather an unrealistic goal, at least for now.
Jet.com was launched by Internet entrepreneur Marc Lore in July 2015 and includes software that can offer a customer lower prices as they add items to their shopping cart.
From the guidance that follows the earnings results, analysts will then get a sense of how Wal-Mart plans to capitalize from Jet.com and ways the management plans to integrate the online business.
In addition to shunning Walmart’s acquisition attempt in 2010, Lore said in one interview previous year: “If someone is unhappy here and doesn’t see an opportunity for growth, OK, good luck, go to Walmart”.
Although the deal with Jet, only has implications for the USA market but once Walmart enters the digital space, it is natural that it would like to expand its footprint and look at high growth potential markets such as India.
Wal-Mart continues to be the largest retailer worldwide as it reported $482 billion in sales in FY15. This was not the first divestiture conducted by Mr. Lore as he previously sold Soap.com and Diapers.com to amazon for $550 million in 2010. By comparison, the firm’s online revenues were just $13.7bn, compared to $99bn for Amazon’s retail business. Jet.com, which touts its service, delivers to two-thirds of the country overnight in its purple boxes. Three months, after Jet.com launched, it ditched its annual membership fee of $49.99, leading critics to question the business model.
Walmart framed the acquisition as an investment in Jet’s youthful brand and dynamic pricing technology, which offers real-time discounts for strategic bulk buying. Users can even further customize orders for more savings. Rival Amazon has more than 200 million items for sale online. As Jet.com has revenue of $500 million so, the cash purchase is sixth times of their actual revenue.
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Walmart is believed to have insisted that Lore remain at the combined company for several years as part of the deal. Especially when layered atop Wal-Wart’s supply-chain excellence and purchase-power scale, it doesn’t take an overly active imagination to see how both Jet and Wal-Mart stand to benefit from each other’s strengths. Shares of Walmart Stores Inc. slipped 50 cents to $73.26 in midday trading Monday.
