Why Walmart Bought Jet.com for $3B: Experts Weigh In

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Why Walmart Bought Jet.com for $3B: Experts Weigh In

By Jamie Grill-Goodman - 08/08/2016
It's official. Wal-Mart Stores, Inc. will purchase e-commerce retailer Jet.com, Inc. for approximately $3 billion in cash in a deal expected to close in 2016. The acquisition could give Walmart's online business the edge it needs to compete with Amazon. 

Jet.com is just a year old and is run by the entrepreneur who co-founded and led Quidsi, the parent company of e-commerce sites Diapers.com, Soap.com and Wag.com, Marc Lore, together with fellow co-founders Mike Hanrahan and Nate Faust. With the help of Faust and Hanrahan, Lore grew Quidsi into a prominent and successful business that was ultimately sold. 

Jet.com offers free 2-day shipping on orders over $35.00 and sells groceries and houslehold items. In comparison, Amazon charges $99 annually for free two-day shipping as part of its Prime membership. Jet.com uses technology that rewards customers in real-time with savings on items that are bought and shipped together, thereby reducing the supply-chain and logistics costs often buried in the price of goods.

Walmart and Jet will maintain distinct brands, with Walmart.com focusing on delivering the company’s Everyday Low Price strategy, while Jet will continue to provide a differentiated customer experience with curated assortment. Jet.com has more than 2,400 retailer and brand partners tailored together to create its distinctive assortment for consumers. Walmart and Jet will leverage innovative technology solutions from both companies to develop new offerings.

The acquisition will build on the foundation in place to serve customers across the Walmart app, site and stores and position the company for even faster e-commerce growth in the future by expanding customer reach and adding new capabilities, according to Walmart. It will also infuse Walmart with fresh ideas and expertise, as well as an attractive brand with proven appeal, especially with Millennials, the first generation of true digital natives. Jet.com has growing customer base of urban and millennial customers with more than 400,000 new shoppers added monthly and an average of 25,000 daily processed orders.

“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,” said Doug McMillon, president and CEO, Wal-Mart Stores, Inc. “We believe the acquisition of Jet accelerates our progress across these priorities. 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.”

“We started Jet with the vision of creating a new shopping experience,” Lore said. “Today, I couldn’t be more excited that we will be joining with Walmart to help fuel the realization of that vision. The combination of Walmart’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.”

So what is retail industry's take on the deal? 

Rick Chavie, CEO of EnterWorks, believes this acquisition means that despite its disappointments, Walmart is not ceding the space to Amazon and has the resources to make big bets, including its commitment to the online grocery business, an area of recent expansion for Jet.com as well. Jet.com has shown a path to acquiring customers, even if at a high cost, which makes it an obvious choice to grow Walmart’s failing e-commerce offerings.

Chavie notes, “Achieving growth in e-commerce has always turned on the proposition that an online retailer gets in tune with customer preferences. There is no question the traditional Walmart has a lot to offer in terms of price, assortment, and geographic saturation throughout the US, and while its ecommerce has achieved some significant scale, it is not enough. Buying a company that has demonstrated how to accomplish outsized growth may be the answer, but it will take discipline not to grind it down to fit the Walmart way.”
 
"Walmart set a lofty goal to significantly expand their online assortment through their marketplace environment," comments  Jenn Markey, VP Marketing, 360pi.  "This move would not only provide Walmart with significant online data capacities and insights, but also shift their entrenched competitive battled against Amazon from just pricing to now battle with assortment and the endless shelf.  Along this same vein, we will likely continue to see more retailers moving away from direct head-to-head pricing wars into assortment and product differentiation strategies, especially during the quickly approaching holiday 'must-win' dates."
 
"I've felt for a while that Jet may be positioning to land at Walmart," says Keith Anderson, VP of strategy and insights at Profitero. "There are a few implications:

"Walmart offers Jet:
  • superior distribution and logistics assets and capabilities -- one of Jet's weakest points
  • buying power
  • a fairly well-aligned strategic owner (similar focus on low prices on both everyday essentials and higher-margin discretionary goods)

"Jet offers Walmart:
  • great talent
  • deep competitive insight into Amazon's operating model
  • a potentially new customer base (they've aggressively targeted shoppers in large urban metros)
  • an emerging third-party marketplace platform, and
  • above-market growth rates

"Even combined, this doesn't put Walmart on even footing overnight. But it does have the potential to accelerate Walmart's growth online, and Walmart is under pressure to do something bold."