Wal-Mart acquires Jet.com for $3 billion
Reports surfaced last week about Wal-Mart’s interest in Jet, with a Wal-Mart spokeswoman declining to comment at the time and Jet not returning multiple requests for comment. Wal-Mart, the world's largest retailer by revenue but far behind Amazon.com Inc. in online sales, anounced this morning that it will pay $3 billion in cash and an additional $300 million in stock to acquire Jet, which launched 13 months ago.
“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,” Jet.com co-founder and CEO Marc Lore said.
Wal-Mart says Jet will continue to operate as its own distinct brand.
“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,” Wal-Mart CEO Doug McMillon said. “Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Wal-Mart.”
“Wal-Mart has definitely put its stake in the ground saying, ‘We’re going to be winning in e-commerce,’" said Joseph Feldman, an analyst at Telsey Advisory Group. “Amazon should be concerned about what Wal-Mart is doing.”
The $3.3 billion cash and stock purchase price represents nearly six times the amount of funding Jet.com has raised in its brief history. According to CrunchBase, Jet has raised $565 million across four rounds of funding.
Jet, which launched to a torrent of hype 13 months ago, offers shoppers a variable pricing model, including lower prices for buying more of certain items or opting out of free returns on items.
The company did $1 billion in gross merchandise volume in its first 10 months, according to chief revenue officer Scott Hilton, and now has over four million active shoppers. Jet.com operates as a marketplace on which some 2,400 brands sell 12 million SKUs, Wal-Mart says. Jet.com process 25,000 daily orders and is attracting 400,000 new shoppers per month, according to Wal-Mart.
Jet launched in July, requiring a $49.95 annual subscription, aiming to generate additional revenue beyond the commission it charges for sellers on its shopping portal. The company opted to jettison the subscription model just three months later, instead opening up the marketplace to all shoppers, which some observers suggested it was having trouble attracting shoppers quickly enough to meet its projections of rapid growth. Jet's basic commission is 15% on a sale, although the rate drops for higher-ticket purchases.
Lore is “one of the smartest people in e-commerce” who will bring a new kind of thinking to Wal-Mart to help it transition to digital commerce, says Sucharita Mulpuru, an analyst at Forrester Research Inc. “Wal-Mart still struggles with things like third party marketplaces, which Marc and his team have successfully built.”
Jet itself grew through acquisition, buying online retailer Hayneedle in February. Hayneedle had been No. 95 in the 2015 Internet Retailer Top 500, with estimated 2014 online sales of $404 million.
The acquisition of Jet appears to be another sign that Wal-Mart, No. 4 in the Internet Retailer 2016 Top 500 Guide, is taking direct aim at Amazon, No. 1.
Some industry experts say this move won’t necessarily close the gap between Wal-Mart and Amazon, however.
“While Jet’s deeply discounted pricing model fits Wal-Mart’s low price strategy we don't believe that this marriage offers anything truly differentiated or new to the market,” says Dianne Inniss, customer experience and innovation strategist at ThoughtWorks Retail. “While Wal-Mart will acquire some interesting pricing technology and the e-commerce capabilities that it has struggled to develop, this investment won’t be a game changer in the battle against Amazon which still accounts for half of all e-commerce growth. Compared to the Amazon.com powerhouse, this marriage still has a long way to go.”
Bloomberg News contributed