Walmart buys Jet.com
Walmart’s acquisition of Jet.com heats up its battle with Amazon
SPENDING $3.3 billion on an unprofitable business might seem an undisciplined splurge. By buying Jet.com, a shopping website, Walmart, the world’s biggest retailer, has joined the ranks of investors betting on so-called “unicorns”, or private startups valued at over $1 billion. The acquisition is the most expensive deal ever for an American e-commerce startup, and a sign of just how worried Walmart executives are by the rise of Amazon. It’s also an admission that despite heavy internal investment, the Bentonville giant’s own site, Walmart.com, is nowhere near enough.
Walmart still accounts for a tenth of American retail sales, but that has declined from 11.6% in 2009, according to Cowen Group, a financial-services firm. Amazon’s share is about half of Walmart’s, but it is growing fast. Moreover, last year, of every $10 that American shoppers dispensed on goods, $1 was spent online. Even the Walmart faithful are beginning to use Amazon. Last year just over a tenth of Walmart’s customers shopped on Amazon too.
Online, where the future battle lies, the news for Walmart is scarcely better. Last year its global e-commerce sales increased by 12% to $13.7 billion, compared with a 20% jump to $107 billion of sales at Amazon. At the start of the year Walmart’s e-commerce sales growth slowed to 7%. For its chief executive, Doug McMillon, this may have been a trigger to make a quick acquisition. Amazon’s fast and efficient shipping through Amazon Prime has also proven hard to match, as has its range of products (Amazon is said to offer well over 200m different items, while Walmart.com serves up around 11m).
One attraction is Jet.com’s real-time pricing algorithm, which tempts customers with lower prices if they add more items to their basket. The algorithm also identifies which of Jet.com’s vendors is closest to the consumer, helping to minimise shipping costs and allowing them to offer discounts. Walmart plans to integrate the software with its own. Buying this platform makes more sense than trying to develop it internally, says Charles O’Shea of Moody’s, a rating agency.
Walmart is also buying talent. Jet.com chief executive Marc Lore has e-commerce pedigree. He co-founded Quidsi, the parent company of Diapers.com and Soap.com, among others, which Amazon itself snapped up for $545m six years ago. Mr Lore will now run both Jet.com and Walmart.com. Walmart also desperately hopes that Jet.com will help it attract millennials, a demographic it wants to do better with. Jet.com boasts a base of millennial shoppers which Walmart claims is growing by around 400,000 per month.
Yet buying online-only Jet.com does not solve another problem that Walmart has, which is how to fuse its e-commerce business with its big-box stores. Nine out of ten Americans live within ten miles of one of its ubiquitous boxes, meaning the firm’s online shoppers can collect their purchases nearby. Walmart says that shoppers who spend both online and in physical stores end up buying more than those who keep to bricks and mortar. But the firm faces two hard truths. First, building an e-commerce business is horribly expensive. Second, as more people shift to shopping online, they may shun Walmart’s vast, neon-lit boxes. This may make the titan of efficiency less profitable and force it to close more stores. It is not unlike the scenario that, not so long ago, Walmart inflicted on small chains of local shops.