Wal-Mart reportedly in negotiations to acquire Jet

Dive Brief:

  • Wal-Mart is in talks to acquire web retailer Jet, the Wall Street Journal reports. Sources said the deal could be worth as much as $3 billion.
  • Acquiring Jet could help Wal-Mart in its efforts to mount a serious threat to Amazon’s e-commerce supremacy. Its site offers about 11 million products, compared to about 260 million on Amazon, and attracted 88 million online visitors in February, compared to more than 1.7 billion for Amazon, according to comScore.
  • Year-old Jet, led by founder Marc Lore, has drawn more than $500 million in financing capital from venture firms New Enterprise Associates and Accel Partners as well as mutual-fund company Fidelity Investments and bank Goldman Sachs Group.

Dive Insight:

Just a few days past Jet’s first birthday comes the bombshell news that Wal-Mart is closing in a deal to purchase the e-commerce upstart.

Late last month, CEO Lore told Fortune that Jet sold $90 million in merchandise in May, compared to $33 million in December, and scoffed at the notion that the company might never be profitable, citing the support of deep-pocketed (not to mention patient) investors. 

Lore added that Jet is not aiming to topple Amazon, but to follow in its footsteps and be “a really large No. 2, 3, or 4.” But even that’s easier said than done, given the sheer size and scope of Amazon’s business: Last week, Amazon reported record-shattering second quarter net sales of $30.4 billion, up 31% from $23.2 billion in the second quarter of 2015—the online retail giant’s fifth consecutive quarter in the black, and its third all-time profit milestone in as many quarters. 

Perhaps only Wal-Mart can pose a legitimate threat to Amazon’s e-commerce dominance, but the world’s largest retailer has struggled to translate its brick-and-mortar prowess to the web. Amazon captured $82.8 billion in e-commerce sales over the last 12 months, growing 15.8% from the previous year, according to eMarketer data sent to Retail Dive. Wal-Mart took in just $13.6 billion in e-commerce sales over the same 12-month cycle.

Wal-Mart recently announced plans to add 1 million products per month to, primarily through the third-party marketplace integrated into its e-commerce site. The company has also embraced a wide range of different technology innovations—e-commerce, mobile payments, premium fulfillment memberships, drones, even robotics—that would otherwise help obliterate its traditional business model if it didn't embrace them.

Acquiring Jet would not only boost Wal-Mart’s overall online prowess, but also give the company deep new insight into the labyrinthine workings of e-commerce economics. Jet is renowned for offering lower prices based on a dynamic formula that takes into account factors like basket size, shipping options and merchandise proximity to buyers, as well as other factors—a seemingly perfect fit for Wal-Mart and its “Always Low Prices” mantra. In addition, Lore himself is an Amazon veteran who sold Diapers-parent Quidsi to Amazon for about $550 million.

But Nick Egelanian, president of retail development consultant SiteWorks International, told Retail Dive earlier this spring that it would be a mistake for Wal-Mart to move too far from its brick-and-mortar stronghold for the sake of e-commerce growth.

“Wal-Mart is the biggest retailer in the world, and their system is selling through brick-and-mortar,” Egelanian said. “And they’re efficient. We know that Wal-Mart has the most efficient system in the world. We know that they break that product down and put it on the shelves, and they do that very efficiently also, and then they’re done. And selling on the internet is not efficient. The whole methodology of selling on the internet is completely foreign to what it’s like selling at a Wal-Mart.”

While purchasing Jet would undoubtedly accelerate and smooth Wal-Mart’s web ambitions, Egelanian questions whether those ambitions are even realistic, given Wal-Mart’s longevity and immensity.

“Wal-Mart is a very, very successful retailer, the most efficient distributor of goods in the world,”  Egelanian said. “But they’re a mature company, and mature companies plateau. Does that mean you’re sick? No, it means you’ve hit a plateau, and you become a company that brings dividends instead of growth returns. Every business I’ve ever studied goes from growth to mature. You can’t grow anything forever.”

Retail Dive has contacted Wal-Mart and Jet for comment.

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