Wal-Mart Announces Acquisition of Jet.com for US$3.3 Billion

By Julian Thumm | 09 Aug 2016

Wal-Mart has announced the acquisition of Jet.com for US$3.3 billion, meaning the world’s largest retailer has made the largest ever purchase of a US e-commerce start-up.

Less than a month after Unilever acquired Dollar Shave Club for US$1 billion, Wal-Mart has announced the acquisition of Jet.com for around US$3.3 billion in cash and stock.

The deal includes US$300 million of Wal-Mart shares to be paid over time, as well as bonuses for Jet executives.

The acquisition represents the largest ever purchase of a US e-commerce start-up and suggests a dramatic ramping up of Wal-Mart’s e-commerce focus.

While it has poured in the resources, Wal-Mart has struggled to grow its e-commerce business, with online sales hovering around 7 percent of total sales for a while now.

For Wal-Mart, “the acquisition will build on and complement the significant foundation already in place to serve customers across the Wal-Mart app, site and stores and position the company for even faster e-commerce growth,” the company said in a statement.

“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 of Wal-Mart. “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.

“It’s another jolt of entrepreneurial spirit being injected into Walmart,” McMillon said.

Jet co-founder and CEO, Marc Lore, will stay on as head of Jet, as well as taking over leadership of Walmart.com. According to Bloomberg, Lore’s continued involvement and his appointment as head of Wal-Mart’s e-commerce operations was an integral part of the negotiations.

“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 Wal-Mart to help fuel the realisation of that vision. 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 and Walmart.com will maintain separate brands and continue to operate as separate websites.

Jet was founded in 2014, after Lore had spent more than two years working for Amazon following Amazon’s acquisition of his previous company Diapers.com for US$550 million. Jet emerged with the specific aim of disrupting Amazon’s retail business. Jet has been able to underprice Amazon by using its proprietary pricing algorithms, which take into account factors like basket size, shipping size and proximity of merchandise to buyers. Shoppers are encouraged to add items to their basket to reduce shipping costs per unit, and to pay with debit cards rather than credit cards to reduce transaction fees and therefore lower the price for the shopper.

For Lore, staying on with Wal-Mart will provide him with a vast arsenal of resources with which to challenge Amazon’s e-commerce dominance.

However, significant challenges remain for both Lore and Wal-Mart. During its brief life, Jet has spent millions to acquire its customers and has not yet shown that it can turn a profit. Jet has also struggled with customer retention, with the average Jet customer purchasing just 1.5 times between the company’s launch and February this year, compared with about 2.1 for Wal-Mart.

For Wal-Mart, the challenges revolve around integrating e-commerce operations into its massive and hugely complex bricks-and-mortar store network and old-school retail model. Wal-Mart CEO Doug McMillon said last month that e-commerce is a priority and has taken too long to grow.

 

 

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