Wal-Mart to acquire Jet.com to battle Amazon

Wal-Mart Stores Inc. agreed to buy e-commerce startup Jet.com Inc. for about US$3.3 billion, giving the world’s largest retailer the resources for a stronger shopping website to compete with market leader Amazon.com Inc.

The deal includes US$3 billion in cash and US$300 million in shares that will be paid over time, the world’s largest retailer said Monday in a statement. Acquiring Jet. com, which achieved a US$1 billion gross merchandise run rate in a little more than a year, gives Wal-Mart a website that processes an average of 25,000 orders a day and is adding 400,000 shoppers monthly.

The move is Wal-Mart’s biggest attempt yet to chase down Amazon, which has dominated e-commerce in much the same way that WalMart has ruled brick-and-mortar retail. Wal-Mart already had spent billions expanding its online operation, including hiring thousands of workers, opening two offices in Silicon Valley, and building large distribution centres. It also started an annual subscription service similar to Amazon Prime, at half the price, but still trails the e-commerce behemoth in online sales.

“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.”

Jet.com has distinguished itself in e-commerce through “gain sharing,” luring buyers to add items to their orders to reduce shipping costs, and to pay with debit instead of credit cards to reduce transaction fees. Traditional store-based mass retailers such as Wal-Mart, Target Corp. and Costco Wholesale Corp. have been struggling to fend off Amazon’s momentum in online shopping.

The deal gives Wal-Mart control over Jet.com’s proprietary technology and its customer database. Wal-Mart’s online sales were about US$14 billion last year, 14 per cent of Amazon’s product and service revenues of US$99 billion. WalMart CEO Doug McMillon said last month that the company’s online operation has taken too long to grow.

Wal-Mart and Hoboken, New Jersey-based Jet will maintain distinct brands, with Wal-Mart focusing on its strategy of offering goods at low prices every day, the companies said. Jet will continue providing a more “curated” assortment of products through a more unique customer experience.

Wal-Mart has definitely put its stake in the ground saying, ‘We’re going to be winning in e-commerce.’

The acquisition of Jet.com is Wal-Mart’s largest ever deal in the U.S. and marks a shift in tactics for the retailer, which has typically built operations from within over its history. Wal-Mart is betting that if anyone can help it catch up to Amazon, it’s Jet.com founder Marc Lore.

Lore, 45, duked it out with Amazon as founder and chief executive of Quidsi, best known for Diapers. com, before a protracted price war and tight credit market during the Great Recession forced him to sell to his competitor for US$550 million in 2010. After working for Amazon as part of that deal, he emerged with Jet in 2015 and a plan to challenge Amazon yet again.

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, said Sucharita Mulpuru, an analyst at Forrester Research Inc.