Wal-Mart’s record-breaking $3.3 billion acquisition of e-commerce upstart Jet is widely viewed as a bold signal that the brick-and-mortar powerhouse is serious about doing something about its lackluster online business — and serious about taking on Amazon.
Jet seemingly fills critical gaps in Wal-Mart's e-commerce strategy. For starters, Wal-Mart's online efforts are hamstrung by a customer base that is composed largely of lower-income, suburban shoppers who are less likely to shop on the web; many don’t even have credit cards. Co-opting Jet gives Wal-Mart an opening with the younger, deeper-pocketed, more urban shoppers that Jet itself has been spending wildly to court.
Jet, of course, was also designed to take advantage of a rare opening Amazon left to its competition. Jet essentially allows consumers to trade Amazon's signature convenience and efficiency for monetary savings: Its dynamic algorithms minimize supply chain, logistics and shipping costs, adjusting merchandise prices on the fly based the number of items in the customer's cart, their distance from Jet's distribution centers and other factors. Compare that with Amazon, which spends an estimated $1 billion per year offering free shipping on Prime member purchases.
Landing Jet has some corners of the internet claiming that Wal-Mart finally has an answer to Amazon's e-commerce dominance. Should Amazon be worried?
“The only thing that could be somewhat threatening to Amazon from Wal-Mart is that Wal-Mart [with Jet] is trying to do something different,” Ried Niziak, research lead at business intelligence firm L2, told Retail Dive. “I don’t think that Wal-Mart could defeat Amazon, but could just annoy Amazon and cause some difficulty.”
Chess vs. checkers
While Jet founder Marc Lore himself has long downplayed the notion that his goal ever was to topple Amazon, he has said there's room aplenty to be “a really large No. 2, 3, or 4.”
But the distance between Amazon and the competition is immense. Following two decades of steady growth and disruption, Amazon has a bulwark in its Prime membership that may be impenetrable, and its share of the U.S. e-commerce market today is greater than that of Wal-Mart, Apple, Macy’s, Home Depot, Best Buy, Costco, Nordstrom, Target, Gap, Williams-Sonoma, Kohl’s and Sears Holdings combined.
“I don’t think Amazon would ever ignore Jet completely, but their attention to Jet would be peripheral at best,” retail futurist Doug Stephens told Retail Dive in an email. “Amazon has woven such a well-crafted web of value within its Prime membership program that it places extraordinary competitive distance between them and the number twos or threes in the market.”
Plus, while Jet has sought to maximize efficiencies by paying close attention to what's being shipped from where, its logistics efforts can't touch Amazon's already vast and still-expanding fulfillment and delivery network, designed to boost its retail business, increase its efficiencies and speed, and improve customer services (particularly for Prime members). Shippers UPS and FedEx and trucking companies have downplayed Amazon’s acquisition of cargo plane leases, truck fleets and international shipping licenses as well as its slew of last-mile delivery experiments, and all say the retailer remains an important client.
But it’s hard not to see that Amazon’s fulfillment capacity is growing, and experts say it could at some point evolve into a side business of its own, much like its Amazon Web Services cloud unit has.
“They’ve built this enormous platform that enables them to service customers with this logistics network — inventories they own, inventories they hold and inventories they direct,” Mark Cohen, professor of retail studies at Columbia University, told Retail Dive. “Just like AWS — they were smart enough to be prescient enough to realize they were building extra capacity for their own growth and that they could monetize that capacity. That’s the genius of AWS: it’s an extraordinarily profitable element on their [profit and loss reports], and it will continue to be profitable because they’ve basically beaten the pants off IBM. At the end of the day, there’s a lot more to Amazon than just this tremendous array of merchandise.”
That means that, unlike Wal-Mart (with or without Jet), Amazon's business stretches far beyond e-commerce retail and delivery, adds Stephens.
“Amazon is already well onto creating its own shipping infrastructure and cargo fleets, entertainment content, connected devices, and a lot more,” Stephens said. “They’re playing chess at a grandmaster level, while everyone else is learning checkers.”
Amazon’s real vulnerabilities
While some onlookers called Wal-Mart’s purchase of Jet essentially a deal for Jet’s celebrating pricing algorithm, not even that technological wizardry has separated Jet from the pack. But that doesn’t mean that there isn’t room to maneuver when it comes to taking on Amazon.
“In the end, I don’t feel that any real threats to Amazon will come in the form of other e-commerce players using the same essential models,” Stephens said. “What could disrupt Amazon is a challenger that comes along and transforms the way people shop online. Companies like Magic Leap, for example, are working on augmented reality technology that sounds like it could be game changing in terms of the shopping experience, and they’re backed by Alibaba.”
Cohen said much the same thing, suggesting that Amazon’s bread-and-butter approach to web commerce may soon fail to pass muster. That could be especially true considering that Amazon has entered the field of fashion, a category notoriously dependent on a narrative shaped by compelling images. That's only being amplified in an era when consumers increasingly expect to be captivated by brands through images, video and even augmented reality experiences.
“I would expect Amazon to work on significantly enhancing the connection customers have with their site, whether it’s enhanced reality, a way for a viewer to examine products in 3D, or animating the site more aggressively more than they do now,” Cohen said.
Cohen adds that as Amazon grows, it can’t let aspects of its stellar reputation — including excellent customer service and dependable merchandise — slip. Recent issues with counterfeit sales on its marketplace are troublesome: Sandal maker Birkenstock this summer pulled all sales from Amazon after it failed to find a way to guarantee that any product marked “Birkenstock” would be legit.
These areas could be exploited by a Wal-Mart-backed Jet or a Jet-enhanced Wal-Mart. But it's going to take much more than an algorithm.
"Let’s say that this algorithm has some really secret sauce and it really does create an expanding element of appeal to consumers," Cohen said. "What does Amazon do? Lower prices or copy it. Amazon could step on Jet.com like a bug if they wanted to. Maybe they will, and maybe they won’t see fit to do that. They’re so far down the road that basically no one's threatening their supremacy."
Can stores even the score?
Perhaps Wal-Mart’s real leverage in its competition with Amazon is its vast network of brick-and-mortar stores. But Wal-Mart (which like Amazon did not respond to Retail Dive's requests for comment) is so far failing to fully exploit the opportunity.
“Wal-Mart is one of our customers, and my perspective after working with these guys is that I’ve seen them under pressure for a long time,” James Norwood, CMO of e-commerce and digital marketing firm Episerver, told Retail Dive. “It’s not so much about e-commerce growth — the Jet acquisition is not going to change things overnight. It’s more that Wal-Mart lacks an omnichannel vision. There isn’t a cohesive vision of bringing store and online together. It almost seems to be a separate vision and approach. Like any of our customers, they take Amazon B2C customers very very seriously, but one thing Amazon can’t do is omnichannel. Amazon doesn’t really have that — but it’s something that Wal-Mart could do.”
Cohen is among those who don't think that Amazon will make much of a play in brick-and-mortar. “I don’t think they’re looking to open thousands of stores,” he said. “Maybe some welcome centers, platforms for their own products and a way to stick their finger in the retail market’s eye. But not big gigantic showrooms or a lot of stores.”
That leaves an omnichannel opening, contends Norwood. But it would require Wal-Mart to make the kinds of improvements to its online channel that it's made in its stores, which in Q2 helped lead the company to its largest same-store sales boost in four years.
Wal-Mart should take the money it has spent training store employees, improving customer service and cleaning up stores "and do that online as well, and make it an omnichannel play," Norwood said. "Maybe it’s not a ‘rich’ experience, but it's the right experience for the traditional Wal-Mart buyer.”
But the idea that stores will be an advantage to Wal-Mart badly misjudges Amazon's own position of power, insists Nick Egelanian, president of retail development consultants SiteWorks International.
“Those that say that don’t understand the Amazon model, which is to offer millions of products through a sophisticated distribution network,” Egelanian told Retail Dive.
In the short term, Wal-Mart's Jet acquisition should help lure customers attracted to its "smart cart" algorithm; also, Wal-Mart's marketplace should grow, boosting its online assortment, which right now pales in relation to Amazon's. But there just isn't enough evidence that Wal-Mart is truly prepared to take on Amazon in crucial areas where it's dominating, including e-commerce distribution, value-added benefits to its Prime membership base and a willingness to plow profits back into its customer-centric ecosystem (an ecosystem propped up by a lucrative cloud services business that keeps Amazon investors pleased and patient).
“I am already prepared for the announcement three or four years from now, explaining how Wal-Mart has given up on Jet,” Egelanian said. “I have very little confidence that this is going to work. I think every year they’re going to be disappointed with the results, and it’s going to be a huge cash drain.”