Walmart is ponying up $3.3 billion to buy Jet.com so it can strengthen its online shopping muscle. This means we'll all be racing to Walmart.com, right?
The world's largest retailer has been getting a lot more aggressive in e-commerce over the past year, introducing an Amazon Prime-like unlimited shipping service called ShippingPass, expanding its online inventory and setting aside $2 billion over the next two years to grow on the web. On Monday, Walmart made its biggest move yet, signing a deal to purchase Jet, one of the hottest new names in e-commerce. The deal comes just over a year after the startup launched its site, which sells millions of items from toothpaste to furniture to potato chips.
If you haven't heard of Jet, you're not alone. The Hoboken, New Jersey-based company is just starting to build its name. Major investors have already bet more than $500 million on the company thanks to the pedigree of CEO and co-founder Marc Lore. The serial entrepreneur helped found Quidsi, the parent of Diapers.com and Soap.com, and sold that company to Amazon for $545 million in 2011.
Lore will lead both Jet.com and Walmart's US e-commerce business after the deal closes, expected later this year.
The acquisition offers a new opportunity for the big-box retailer and the startup to create a real rival to Amazon, potentially offering consumers more choice online and driving prices down. The deal shows how serious that Bentonville, Arkansas-based Walmart has become about e-commerce, as more consumer dollars migrate to the web from physical stores. It also serves as an admission from the company that it needs help figuring out online retail.
Walmart will need to solve that equation quickly. Over the past few years, Amazon has run away with online retail. Walmart's e-commerce sales last year were $13.7 billion, while Amazon's revenue was $107 billion, including its cloud-services business. Walmart's total revenue, nearly all from its stores, was just under a half trillion dollars. But as the online market continues to grow, there are questions about whether Lore can jump-start Walmart's e-commerce business.
"They have a big gap to close," said Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University. "The gap is huge. And it's not shrinking, it's growing. What's going to happen to that is anyone's guess."
Amazon didn't respond to a request for comment.
To truly compete with Amazon, Kalyanam said, Walmart needed to tear up its e-commerce playbook and try something new.
"Clearly what this is telling us is Walmart's e-commerce investments haven't led them to a trajectory they are satisfied with," he said.
Walmart's online sales growth has been slowing from more than 20 percent in 2014 to less than 10 percent in the last two quarters, according to the Economist Intelligence Unit.
By contrast, Amazon's sales in its last quarter rose 31 percent.
Walmart has come up with some innovative ideas in online retail, but has failed to execute them effectively, partly because it has treated the e-commerce business as an appendage of its physical stores, analysts said. The Jet deal, though, may change that.
"Ideas that get executed are never good enough, fast enough or done as well as Amazon," said Sucharita Mulpuru, Forrester's online retail analyst.
The Jet deal should give Walmart new tools to amp up its e-commerce business. The startup developed a sophisticated real-time discounts system that lowers prices for consumers if they add more items to their virtual carts or waive free returns. Walmart CEO Doug McMillon said Monday that Jet will continue to operate as its own brand in the US. But over time, he plans to integrate some of Jet's innovations.
The purchase may end up to be too little, too late for Walmart if its goal is to catch up to or even surpass Amazon. While Walmart tries to firm up its online storefront, Amazon has already moved on to developing delivery drones, a TV and movie studio, and a made-up holiday called Prime Day for its loyalty-program customers. However, Walmart could find success as the second site shoppers go to as they're searching for the best price, which may hopefully help the retailer grab some of the new consumer dollars migrating online, said Moody's analyst Charlie O'Shea.
"If I'm Amazon, am I terribly worried? I don't know," O'Shea said. "Amazon's got such a big lead."