With deal, Wal-Mart shifts e-commerce strategy
Traditional retailers have spent more than a decade and billions of dollars trying to transform their brick-and-mortar businesses for the online shopper. Yet Amazon and other digital upstarts continue to lap them.
Now Wal-Mart, the world’s largest retailer and the dominant player of bigbox stores, is turning to someone else’s technology and talent. On Monday, the company said it was buying Jet, a year-old online bulk retailer, for $3.3 billion, the largest deal ever for an e-commerce company.
The purchase, and a shuffling in the executive ranks that comes with it, are Wal-Mart’s clearest acknowledgments yet that its online strategy is not working. It also sends a strong message to the rest of the consumer and retail industry: When it comes to competing against Amazon, not even the mightiest brick-and-mortar stores can go at it alone.
“The other retailers are going to be looking up to it and saying, ‘You know, absolutely, we’ve been failing at doing this,’” said Jharonne Martis, a retail analyst at Thomson Reuters. “Bringing in an expert might be the key to it.”
Overall, Wal-Mart’s e-commerce sales have stalled. The online business grew just 7 percent last quarter, a number that Doug McMillon, the company’s president and chief executive, acknowledged at the time was “too slow.” Most recently, the company has focused much of its
online strategy on expanding its curbside grocery pickup business.
Jet is perhaps best known for an algorithm that encourages bulk buying, an area where Walmart.com has fallen short and could energize its sagging online growth.
Wal-Mart said Jet offered it access to “urban and millennial customers,” two groups that the retailer’s large rural footprint has been slow to attract. WalMart said on Monday that Jet had added more than 400,000 users monthly.
Jet says it uses a complex formula to offer items 10 to 15 percent less than competitors by adjusting prices based on the quantity of products bought at once. The company relies heavily on suppliers, and WalMart offers more pricing power and potentially better distribution operations through its vast network of warehouses across the country.
Still, the $3.3 billion figure is eye-popping, given that Jet.com started selling products barely a year ago.
Wal-Mart is not valuing Jet.com solely based on traditional metrics like profitability, which the startup does not have. The retailer is spending billions in cash and stock in large part for something — or someone — else: Marc Lore.
Lore, who started Jet. com, is seen as one of the few executives who can help dent Amazon’s edge.
“If you looked at Jet from a fundamentals perspective, the company wouldn’t be worth what they’re paying for it,” said Anand Sanwal, chief executive of CB Insights, a research firm covering venture capital. “They’re trying to inject Marc and probably some of the veterans on his team, and try and help Wal-Mart figure this out.”
Wal-Mart will pay $3 billion in cash, a portion of which will be distributed to Jet.com stakeholders over time, while $300 million will be paid in WalMart stock over time.