Is Walmart Acquiring Jet.com To Take On Amazon?
Recently, WalMart (NYSE:WMT) announced that it had agreed to acquire U.S. e-commerce company Jet.com for $3 billion in cash and $300 million of Walmart’s shares, which will be paid over time. This large acquisition, aimed at augmenting Walmart’s e-commerce initiatives, indicates that the company is serious about giving Amazon tough competition in online retailing. The transaction is interesting in a number of ways. Walmart and Jet will continue to maintain their distinct brands and websites. Indeed, each business targets different consumer segments. More importantly, through this acquisition Walmart will be able to tap into Jet’s innovative leadership team to build its own e commerce segment. (Read more on this below.) Walmart’s e-commerce growth is slowing down (around 7% growth in sales for Q1 FY 17) and the company knows that “winning in e-commerce” is critical for its business. With the acquisition of Jet.com, Walmart will be able to accelerate its efforts in e-commerce with innovative techniques and will be better equipped to catch up with Amazon in the longer term.
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Intellectual Capital To Accelerate E-Commerce Initiatives
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While Jet.com will continue to remain a separate brand after its acquisition by Walmart, the latter believes that this acquisition will build on its foundation to serve customers across the Walmart app, its website and and its stores. And it will position the company for a faster e-commerce growth. Jet.com is known for providing a unique and differentiated consumer experience with a curated assortment of products, appealing more to the affluent shopper. While both companies have different business models, Walmart is looking at Jet’s technology expertise to arrest the slowdown in its e-commerce growth. Jet.com’s founder, Marc Lore is known for his innovations in e-commerce and has established and subsequently sold a series of online retailers. Clearly, Walmart appears to be looking to tap into this talent.
In the most recent fical year (ended January), e-commerce sales of around $14 billion accounted for nearly 3% of Walmart’s total sales of $482 billion. In comparison, Amazon’s revenues in 2015 for the U.S. electronics and general merchandize segment with around $50 billion. (See the Trefis Model for Amazon here). These numbers indicate that Walmart has a lot of catching up to do and the company is investing heavily on its e-commerce initiatives. In the past few months, Wal-Mart has increased the number of products it sells online from around 8 million to 11 million by overcoming the technological limitations. The company is also making a $2 billion investment in additional technology and logistics capability to increase its e-commerce sales. It recently announced a pilot program partnering with Uber and Lyft for last mile delivery of groceries ordered online. So far, Walmart has been organically growing its e-commerce business. The acquisition of Jet.com should give a boost to these initiatives and accelerate the pace of development. The intellectual capital acquired through this deal can be instrumental in driving Walmart’s e-commerce initiatives.
The acquisition of Jet.com confirms Walmart’s serious intent to develop e-commerce. That said, we believe it still has a long way to go “catch up” with Amazon, which is expanding rapidly both domestically and internationally. Clearly it has its work set out for it.
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