Media Moves and News

Coverage: Wal-Mart wants to buy online retailer Jet.com

August 4, 2016

Posted by Chris Roush

  • wal-mart-logoWal-Mart Stores Inc. is in the process of bidding for online retailer Jet.com in a move that would increase its competition with Amazon.com.

Greg Bensinger and Sarah Nassauer of The Wall Street Journal have the news:

A deal could give Wal-Mart’s e-commerce efforts a much-needed jolt as the world’s largest retailer seeks to grow beyond its brick-and-mortar storefronts with speedy home delivery from a network of massive suburban warehouses.

It isn’t clear how much Wal-Mart would pay for the unprofitable startup, but a person familiar with the matter said Jet could be valued at up to $3 billion. That would be Wal-Mart’s biggest acquisition since buying South African retailer Massmart Holdings Ltd. for $2.3 billion in 2010, a sign that executives at the retail behemoth are willing to spend big to catch up with Amazon.

“Wal-Mart could certainly use some energy” around its online efforts, said Bryan Gildenberg, an analyst at Kantar Retail. “I’m struggling with the math of why you would pay this much money for this [business] model at this particular time.”

Jason Del Ray of Recode writes about why it makes sense for Wal-Mart to buy Jet.com:

On the Walmart side, its e-commerce efforts have largely been viewed as a failure in recent years for a retailer of its size and power. Annual revenue for the division is around $14 billion, compared to $99 billion for Amazon, excluding Amazon’s AWS cloud computing unit.

Walmart’s e-commerce growth is also lower than the industry average and has been decelerating for more than a year. In the fall, the company said it would invest an additional $2 billion into those efforts to try to close the gap.

Five years ago, it would have seemed possible, but unlikely, that Walmart could catch up with Amazon. Today, that notion is laughable. Amazon accounts for half of all e-commerce growth today, by some estimates, and its North America retail business continues to grow more than 30 percent a year. Walmart recently unveiled a two-day shipping program to compete with Amazon’s highly successful Prime membership, but it seems several years too late even if it is half the price.

In Jet, Walmart would be acquiring the startup’s sophisticated pricing technology, which provides discounts to shoppers based on factors such as order size and proximity to partner warehouses. Shoppers typically save more as they add additional items to their virtual cart.

While Amazon’s success has largely been built around the convenience of its Amazon Prime membership program, Jet has been primarily focused on trying to beat everyone on price. It’s a strategy that won’t topple Amazon, but one that could make a dent with the help of Walmart’s existing pricing power and logistics network.

Michael de la Merced and Mike Isaac of the New York Times examined Jet.com’s strategy:

Of all that have tried, few have been seen as anti-Amazon as Marc Lore, Jet.com’s founder, has. An entrepreneur who previously founded the parent company of Diapers.com and later sold it to Amazon for $550 million, Mr. Lore and Jet.com were featured on the cover of Bloomberg Businessweek in January 2015 — before Jet.com had made a single sale — with the headline “Amazon Bought Marc Lore’s Company. Now He’s Coming for Them.”

From offices in Hoboken, N.J., Jet.com tried to chart a different course in the e-commerce market. It attacked Amazon directly, seeking to build a national network of warehouses while offering a similarly broad selection of goods. But it also sought to undercut Amazon on price, using complex formulas that adjust the cost of items based on factors like the quantity of products bought at once. For an annual membership fee of $50, Jet.com consumers could get access to goods priced 10 to 15 percent less than anywhere else on the web.

Mr. Lore also tried to make Jet.com different from other start-ups at the workplace. Most start-ups try to bend a reluctant universe to their will, which means employees sweat 12-hour days and seven-day weeks. Private lives go by the wayside. But Jet promoted itself as a start-up with a difference: one focused on employee well-being.

“I’m constantly asking people at Jet if they’re happy,” Mr. Lore said in an interview last fall. “It’s really important for me to know that they love working here and think this is the best place they’ve ever worked.”

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