The world’s largest retailer Walmart will buy Jet.com, a two-year-old online retailer, for $3 billion in cash. Once complete, the acquisition will be the largest e-commerce acquisition in history. The sale will help Walmart beef up its resources to compete against Amazon, while also saving Jet.com from an uncertain future.
“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 Walmart president and CEO Doug McMillon in the official announcement.
“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. Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Walmart,” McMillon added.
Through thousands of trusted retailers, Jet.com sells more than 12 million products from 600+ brands in popular categories like home appliances, sporting goods, home organization and wearable technology, but the e-commerce retailer also offers a wide variety of everyday essentials (e.g., groceries, laundry, health and beauty, pet supplies, baby items) available for two-day delivery.
The company offers free two- to five-day shipping on orders over $35. Orders under $35 are shipped for $5.99. Everyday essentials come from Jet warehouses, while other products come from retail partners. The unique selling proposition of Jet is that the more you buy, the more the prices drop. Customers can also save money by opting out of free returns and paying by debit card.
The two-year-old Jet.com has had a rocky history, abandoning its $50-a-month membership model early on and now spending $20 million to $25 million a month in advertising to acquire and retain customers, according to CNBC. Despite a recent round of fundraising totaling $619 million, Jet.com is not sustainable long-term with that type of spending.
CNBC says Marc Lore, co-founder and 25 percent owner of Jet.com, will stay on to run Walmart’s e-commerce operations in the U.S. which includes Walmart, SamsClub.com and Jet.com. The current e-commerce chief, Neil Ashe, will remain with Walmart for a transitional period, but will eventually leave the company.
“We started Jet with the vision of creating a new shopping experience. Today, I couldn’t be more excited that we will be joining with Walmart to help fuel the realization of that vision. The combination of Walmart’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,” said Lore.
Walmart cited a number of unique advantages provided by Jet.com, including:
- Ability to scale with speed, reaching $1 billion in run-rate gross merchandise value and offering 12 million SKUs in its first year
- A growing customer base of urban and millennial customers with more than 400,000 new shoppers per month
- An average of 25,000 processed orders daily
- Best-in-class technology that rewards customers in real time with savings on products purchased and shipped together, reducing supply-chain and logistics costs
- A select group of more than 2,400 retailer and brand partners to create quality curation and unique product offerings for customers
Walmart anticipates receiving regulatory approval for the acquisition “in the near future.”
Walmart is now competing head-to-head with Amazon. Amazon, of course, has huge resources, a popular online marketplace, and a solid winner with subscription product Amazon Prime. Though Walmart isn’t competing with Prime in terms of cloud storage, music or movies, it is competing in terms of online retail offerings and its two-day shipping subscription for $49 a year, about half what Amazon charges.
While Walmart will probably never be able to compete with Amazon or Amazon Prime on all fronts, it can certainly give Amazon a run for its money on something it knows well – retail – while honing its shipping and distribution operations to compete on the e-commerce front. Though Jet.com has its own challenges and is not viable independently, Walmart’s acquisition will allow the Jet.com vision to continue while bolstering Walmart’s e-commerce efforts faster than it could ever do alone. This is going to get interesting.