Wal-Mart buys Jet for record-breaking $3b
After days of speculation, Wal-Mart Stores officially announced its acquisition of online retailer Jet on Monday morning, completing the biggest deal in U.S. e-commerce startup history.
The deal values Jet at some $3 billion, with $300 million of Wal-Mart shares to be paid over time as well as bonuses for Jet executives, including co-founder and CEO Marc Lore, who will remain with the company once Wal-Mart assumes control. Lore's continued involvement was a key stipulation of the negotiations, Bloomberg reports.
Jet was co-founded in mid-2014 by Lore, who has said that there’s room for more than e-commerce giant Amazon in online retail. Meanwhile, Wal-Mart has struggled to compete online, with growth stagnating at around 7% and online sales of $14 billion last year, paling in comparison to Amazon's $99 billion retail business.
In its short life, Jet found a way to disrupt modern retail’s great disruptor, Amazon, by offering lower prices based on a dynamic formula that takes into account factors like basket size, shipping options and merchandise proximity to buyers.
“[Jet] figured out a weakness that Amazon has, which is that many of their marketplace products get shipped in an uneconomical way,” Stephan Schambach, founder and CEO of mobile platform NewStore and founder of e-commerce platform Demandware (recently sold to Salesforce), told Retail Dive. “[Jet] figured out a way to essentially undercut Amazon in price and efficiency in the overall mix. They have been very clever.”
What Schambach calls Jet’s “nimbleness, lightweight, highly computerized process” could boost Walmart.com, which has comparatively struggled, while Wal-Mart’s huge merchandise assortment would greatly extend Jet’s reach.
While many observers have been skeptical that Lore would stick around after such an acquisition, Bloomberg says it was a prerequisite for making the deal happen. Lore spent just two years at Amazon after the e-retail giant bought his previous company, Quidsi (which ran Diapers.com), for $545 million, after which he went on to develop Jet.
Recode is reporting that Lore will run both Jet and Walmart.com. Wal-Mart and Jet will maintain distinct brands, the former confirmed Monday.
“If I were in their shoes, I would find a way to combine Jet’s capabilities with the Wal-Mart brand,” Schambach said. “Then this could be a very potent combination.”
Still, many questions remain. While Jet has swiftly reached a billion-dollar valuation, it's spent millions to acquire customers and hasn't turned a profit. Plus, while Jet has ramped up its customer base, it’s having less luck keeping those customers around, Slice found. “Jet’s big vulnerability is repeat purchase, with its average customer purchasing just 1.5 times between launch and the end of February, compared with 2.2 for Target and 2.1 for Wal-Mart over the same timeframe,” according to Slice.
Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University, told Bloomberg that Wal-Mart's huge brick-and-mortar assortment and vendor relationships could help Jet, but suggested the company will have to make additional moves to mount a significant threat to Amazon's online dominance.
“The gains with Jet alone are not compelling right now,” Kalyanam told Bloomberg. “If Wal-Mart helps make the gains for shoppers more compelling, it may have some legs. It’s something unique and fits with Wal-Mart’s desire for shoppers to have a large basket at checkout.”
Follow Daphne Howland on Twitter