Report: Wal-Mart/Jet talks may lead to investment, not acquisition
Following a recent Wall Street Journal report that retail giant Wal-Mart Stores may acquire pure-play retailer newcomer Jet for as much as $3 billion, rival media outlet Bloomberg is reporting that the talks may instead result in a strategic investment.
Jet has been reaching out to Wal-Mart and other retailers for capital to expand its battle against e-commerce goliath Amazon, sources told Bloomberg, indicating that the startup seeks to raise about $640 million at a valuation of approximately $1.7 billion.
Jet has secured more than $500 million from investors and was valued at more than $1 billion after its last fundraising round. A source said Jet reached a $1 billion run rate in July, with monthly sales also beating internal forecasts.
Wal-Mart is the world’s largest retailer, but its business is based squarely on brick-and-mortar. Despite billions in investments (in Silicon Valley and elsewhere) to boost its e-commerce operations, the retailer is posting just 7% growth in most quarters, according to estimates. That pales in comparison to the growth experienced at Target and Amazon.
“Wal-Mart's e-commerce business is among the more complex in the world, and it's still a tiny fraction of their vastly complex brick-and-mortar business,” Keith Anderson, VP of strategy and insight at e-commerce analytics firm Profitero, told Retail Dive in an email earlier this year. “They sell food and non-food; run an online marketplace and a traditional e-commerce business; offer delivery and click-and-collect; and they attempt to operate across four continents with enough freedom to be locally relevant and enough standardization to be centrally manageable.”
Enter newcomer Jet, which has logged impressive results like sales that last month grew 168% relative to August 2015, according to data provided to Retail Dive from Slice Intelligence. Wal-Mart’s online sales, meanwhile, have grown only 30% over the same time period, excluding the holidays, Slice said.
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.
An investment could give Jet the time that founder Marc Lore has long said it needs to scale and reach profitability, and could let Wal-Mart maintain a wait-and-see attitude, experts told Retail Dive.
“I don’t know this, but [Wal-Mart] must believe that [Jet] has a leg up or is able to produce infrastructure commensurate with Amazon,” Nick Egelanian, president of retail development consultants SiteWorks, told Retail Dive. “They’re the best at all the things that make great retailers really efficient. They changed the model. Wal-Mart is an amazing logistical company—but not this part of logistics.” An investment in Jet could give Wal-Mart a seat on the startup's board, Egelanian added.
Jet has made a name for itself by quickly amassing customers, and that could be attractive to Wal-Mart. But Wal-Mart has little track record in buying other retailers, according to Poonam Goyal, an analyst at Bloomberg Intelligence.
“The only thing I see Wal-Mart gaining is customer acquisition and I’m not sure if that is enough,” Goyal told Bloomberg. “Also, Wal-Mart has a build-versus-buy philosophy, so it’s hard to digest that they are willing to deviate from that, at least here in the U.S.”
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