Would Walmart + Jet.com be an Amazon killer?

Discussion
Photo: Jet.com
Aug 04, 2016
George Anderson

Walmart is in talks to buy Jet.com, according to The Wall Street Journal and other sources. The report has raised the question as to whether a union between the world’s largest retailer and the heavily-backed e-tail startup would prove an equal e-commerce match to Amazon.com.

The move by Walmart, should it prove true, speaks to both great opportunity and risk for the retailer.

The opportunity lies in the prospect of future retailing greatness for Jet, which is run by CEO Marc Lore who co-founded Quidsi (Diapers.com, Soap.com, etc.) only to sell it to Amazon for over $500 million in 2010.

Source:
Source: Slice Intelligence

Jet launched last year initially with the idea it would charge an annual subscription fee like Costco while promising low prices to its members. The annual fee was scrapped less than six months in as Jet sought to draw more shoppers to the site. Jet has remained true, research has suggested, to its low price mantra with retails that undercut both Amazon and Walmart. Much of its pricing power has come from the over $500 million in investments Mr. Lore has been able to attract from banks, mutual and capital venture funds.

The acquisition of Jet could potentially help Walmart reach new consumers and hasten growth in some product categories, according to data from Slice Intelligence’s panel of over four million online shoppers. According to its data analysis, Slice has found that Walmart.com’s customers tend to be more female, slightly older and less educated than Jet’s shoppers. While both companies are strong in online sales of electronics and the home & kitchen categories, a higher proportion of Jet’s sales come from grocery and health and beauty product sales than Walmart.

On the risk side, Jet is a long way from turning a profit. Much like the Amazon model, Jet has been primarily focused on gaining customers while being less concerned about profits. It has even sold goods purchased from other retailers at a loss to satisfy customers. Jet, according to the Journal, could be valued at up to $3 billion. As a point of comparison, Walmart paid $2.3 billion to acquire South Africa’s Massmart in 2010.

DISCUSSION QUESTIONS: Does a Walmart acquisition of Jet.com make business sense? Do you think Walmart would seek to integrate Jet.com into Walmart.com or continue to run them as separate entities? How would Jet.com work with Walmart’s physical store locations?

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26 Comments on "Would Walmart + Jet.com be an Amazon killer?"

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Ken Lonyai
BrainTrust

Amazon killer? Nah. It might get Amazon to look over its shoulder a little bit, but Amazon’s 31 percent online market share isn’t evaporating anytime soon.

The people at Walmart aren’t dumb, they see something that they need in Jet. If they’re wrong, Big W can easily absorb a misstep. My guess is that the software for pricing and logistics is the real aspect of interest. They can set up a lot of warehouses for $1 billion and don’t need to buy into that. An immediate expansion of market demographic never hurts either.

Peter Fader
BrainTrust

What a terrible idea! Tying two bricks together won’t help either one float. Jet.com has been a mess since day one. Walmart needs a partner with a proven record of success to find a way to make online work for them. They should steer far away from this losing proposition. They’d be overpaying at even half of the reported price.

Max Goldberg
BrainTrust

Walmart has struggled with e-commerce, so it might see Jet, particularly its executive team, as a good way to challenge Amazon, but Jet is a money-losing, unproven entity without a strong consumer base. Any way you look at this, it’s a risky investment for Walmart. And it’s much too early to tell how Walmart might integrate Jet into its business.

Dick Seesel
BrainTrust

The risk isn’t great to Walmart, considering the purchase price vs. Walmart’s scale. But the reward is definitely in favor of Jet.com’s founders and investors, who are about to become very wealthy. The real question is whether Walmart intends to keep the Jet.com brand alive or simply wants to take a competitor off the playing field.

Jet.com seems to have followed the typical internet startup path of losing money while aggressively trying to build traffic and market share. But Walmart’s move makes it hard to tell if Jet’s business model is sustainable over the long haul. Let’s face it — nothing about this move changes the reality that Amazon is the alpha dog.

Paula Rosenblum
BrainTrust

I think it makes a ton of business sense, but more because Walmart buys a legitimate marketplace than because of the new categories and, even more importantly, it buys the algorithm.

I don’t think a lot of people understand what the algorithm does … it calculates optimal distribution points and adjusts shipping charges accordingly. That’s a very short description of a very complex thing.

So I think it’s a good move that poises Walmart for better growth potential than it has solely with walmart.com.

Ori Marom
Guest

The future of online retail seems to lie in managing platforms rather than stores. With over two million active sellers, Amazon’s Marketplace already counts for over 40 percent of overall sales and is expanding very fast.

Walmart is a single seller. Even with the power of Jet.com it would find it very hard to compete with leaner and more agile multi-seller platforms such as Amazon Marketplace and Taobao.

Cathy Hotka
BrainTrust

Walmart’s acquisition of Jet is predicated on the belief that customers will turn to the Web to order household staples. While some people probably will, you have to assume that busy moms who have to head to the grocery store anyway (for produce, meat and dairy items) will likely purchase their cat litter and diapers there too. Color me unimpressed, especially at a rumored $3 billion price point.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Indeed, let reason prevail Cathy! You make the core and excellent point. It’s about omnichannel and combination and the nature and economical efficiencies of shopping.

That said, the Walmart strength is efficiency in sourcing and supply while it strives to be the go-to place for low-cost, high volume regular shopping. Jet offers Walmart a “buy” rather than “make” e-commerce option at a time when moving assertively into this channel is indicated.

The acquisition price of Jet has to be weighted against customer shift and capture, and the assessment of what assets and capabilities Walmart and Jet can produce for time-stressed, cost-conscious, service-expecting consumers.

Keith Anderson
BrainTrust

A combined Walmart and Jet wouldn’t pose an existential threat to Amazon, but Walmart would gain access to an elusive shopper segment, great talent and solid technology. And Jet would benefit from Walmart’s scale and sophisticated supply chain.

Both businesses share a focus on low prices and value for both everyday essentials and higher-margin discretionary goods, and Walmart is under pressure to do something bold. It’s no silver bullet, but it makes sense to consolidate when no one but Amazon is growing at 1.5 to 2x the online market organically.

Ross Ely
BrainTrust

E-commerce is the future of retailing, and Walmart’s in-house efforts to build a competitive platform have not been successful thus far. Acquiring Jet would give Walmart a platform with positive momentum along with a management team with proven success in e-commerce. Failure in e-commerce is not an option for Walmart and they must move aggressively to better compete in this space.

Walmart need not be in any rush to integrate Jet with Walmart.com. With Walmart’s backing, Jet could succeed on its own first with the product mix that is right for its growing customer base. Over time, Walmart could find synergies and leverage it physical locations for shopper pick-ups.

Richard J. George, Ph.D.
BrainTrust

I don’t think so. Jet.com has struggled. Not that Walmart hasn’t struggled in its battle against Amazon. However, the only assets Jet.com may bring to the table are a new demographic and technology. I can’t help but think that the world’s largest retailer with its logistics systems would not be better off but making a similar investment in technology to close the Amazon gap.

Lee Peterson
BrainTrust

Yeah, I don’t really get it. I get it from Jet’s founder’s perspective … as in, making billions of dollars. But I’m not sure I get how this overlaps with Sam’s Club, which is essentially the same thing. I mean, why not just make the Sam’s Club website better?

Gene Detroyer
BrainTrust

If you are going to compete with Amazon you have to be as ubiquitous as Amazon and this doesn’t do it. Will it add some scope to the Walmart.com business? Yes. Will it add some, I emphasize “some” customers? Yes. Will it challenge Amazon? Probably no more than Walmart.com already does from a marketing or market position.

So why are they doing it? I am guessing it is for the systems that Jet.com has developed. Walmart.com is a bit clunky, though getting better. They have to be smoother online and always more efficient in logistics. Perhaps Jet.com helps them there.

Chris Petersen, PhD.
BrainTrust

While Walmart is number four in e-commerce in the U.S., it only has 3 percent share. Jet’s $1 billion in a year is impressive, but not enough to make a difference to Walmart’s revenue.

Walmart’s purchase of Jet would be for other reasons: Jet’s market place with over 2,300 retailers, one-day delivery expertise, experience in groceries and consumables and categories like furniture not typically sold online. Walmart’s other keen interest in Jet is that they generate a larger market basket and have younger customer demographics.

The question is, what would Jet be getting out of the deal? The easy answer is capital. Jet has burned through $500 million building a customer base primarily based on lowest price. That is not sustainable long-term. Jet needs both capital and Walmart’s deep pockets to invest in infrastructure and systems.

Will the combination of the two be an Amazon killer? Not very likely at least in the short-term. But the e-commerce race is a marathon, and no one can afford to forget there are others in the race … especially giants like Alibaba.

Tom Dougherty
BrainTrust

Of course the purchase makes business sense. The REAL issue is if it will have any effect on Amazon’s dominance of on-line selling.

I don’t think shoppers on Amazon and those using any version of Walmart marketing are necessarily looking for the same things. Walmart promises the lowest price but you have no means to compare Walmart pricing with competitors on their online retail site.

Amazon is ALL about scope and live price comparisons (including used items).

To me, this move by Walmart is just proof positive that the Amazon model is growing in its successes. As the model progresses, watch for retailers on Amazon to start matching Walmart pricing because despite Walmart’s logistics prowess, online retailers don’t need to support expensive retail locations.

Ryan Mathews
BrainTrust

This would be a great deal for Jet.com since it would guarantee them what they have always searched for — a profit. But for Walmart? Sure, they can afford it in the short-term, but can they make it work over time? That’s a much tougher question. Amazon’s strength isn’t so much in logistics anymore, it’s in building multiple touch points to an increasingly loyal customer base and attracting new customers with technologies such as voice activation, instant reorder, etc. That’s much harder to compete with.

If Jet.com were to be integrated into Walmart the results are likely to be disastrous. You are talking about two radically different cultures — cultures which might have a hard time integrating.

As to how the two entities might interact we could easily see the “no-brainers” Jet.com-ordering kiosks, in-store pickup, etc.

Shep Hyken
BrainTrust

This could be an expansion of Walmart’s retail foot print. I like that. What I’m uncomfortable with is this being Walmart’s answer to go head-to-head with Amazon.com. Walmart has always been a competitor to Amazon. They have low prices and a big merchandise selection. Their online presence is strong. But Amazon is still growing through innovation, not through acquisition. Walmart has a lane, even if it’s close to Amazon’s. I like that Walmart is playing to its retail strengths, but to think this is solely a competitive play against Amazon could be a distraction to making this merger work.

Lee Kent
BrainTrust

I join the others here who have said it is a good move for Walmart in the e-commerce space. Walmart would be smart to use Jet’s model, algorithms and all.

The problem is, Jet still has a long way to go. But perhaps the boost from Walmart’s existing customers would help get them over the hill too.

And that’s my 2 cents.

Tom Redd
Guest

Not an Amazon killer — but a Walmart jewel. If Walmart can keep Jet.com as a division of Walmart as they do with Sam’s, then they can really step up their ecomm game and cause Jeff some grief. Walmart is already a retail giant. Amazon is still chasing them — no matter what the press says. Walmart is a larger part of millions of people’s well-being — be it for jobs or food.

Amazon is not and never will be. That is how you measure the real win and value nowadays.

Walmart makes life better for many — no matter how many of the middle income or upper income people do not like Walmart. They make life better.

Consider that before you slam them at your next cocktail party!

Herb Sorensen
BrainTrust
Good deal or bad deal, none of this addresses the fundamental problem that bricks retailers do not confront when thinking of going online. It’s really pretty simple: bricks retail is built on EFFICIENTLY supplying a host of neighborhood warehouses (aka stores) with PALLETS of merchandise. Then UNPAID STOCK-PICKERS (aka shoppers) select and deliver their own merchandise to themselves. Amazon, on the other hand, has built a massively EFFICIENT warehouse system, designed to pick and deliver INDIVIDUAL ITEMS for delivery to INDIVIDUAL SHOPPERS. The efficiency includes automation to the max — including robots, etc. Building a business based on item logistics is radically different than building one based on pallet logistics. The idea of overlaying an online ordering site onto pallet logistics system is pouring money down a rat hole that will NEVER compete with Amazon — except maybe on the surface, looking at things superficially. Is that the only way to look at retail? Not at Amazon. And Amazon is just as clueless in thinking about bricks retail, as bricks retailers are in thinking about online. Don’t think so? Check out Amazon’s foray into bricks in Seattle. I discuss that in the second edition of “Inside the Mind of the… Read more »
Brian Numainville
BrainTrust

The play here would be for Walmart to gain knowledge and learnings from this acquisition to move them forward in e-comm. So from that standpoint it makes sense and if they can leverage something out of it, the juice will be worth the squeeze.

Larry Corda
Guest
1 year 2 months ago

Maybe, just maybe Walmart has tapped out its share of the market who wants to either buy from or support them. There’s a Walmart store in just about every American city so customers just might not feel the need to visit walmart.com.

Does walmart.com attract new customers or mostly Walmart store shoppers? If they’re not new customers, then they might just be moving sales from their stores to their website. In order for Walmart to grow substantially in stores and/or online it must change people’s perception about them from “have to” buy from Walmart to “want to” buy from Walmart.

People ”want to” buy from Apple. People “want to” buy from Target. People “want to” buy from Amazon. I can’t say people feel the same about Walmart. My perception is that people shop at Walmart more out of necessity either because of a lack of options in their community or economic reasons. So I would have to say no, Walmart + Jet.com will not be an Amazon killer.

Adrien Nussenbaum
Guest
Adrien Nussenbaum
1 year 2 months ago

Walmart’s acquisition of Jet.com makes perfect sense. It is a clear endorsement of the marketplace model, where 3rd party sellers offer products on a retailer’s site. Amazon’s success with this model has put a ton of competitive pressure on Walmart.

Over time, Walmart is likely to incorporate Jet more into the Walmart brand because the role of the marketplace operator is to create trust through its brand.

The marketplace model fits well for an omni-channel retailer like Walmart. The ability to provide things like “click and collect” and “buy online, return in store” will help capture more of the overall customer spend and actually drive more store traffic. This will help Walmart to differentiate from Amazon via its physical presence. Other omnichannel retailers should be embracing the marketplace model.

Camille P. Schuster, PhD.
BrainTrust

The path to success would be total integration so Walmart then has a strong, efficient online system to integrate with its digital system for store logistics and customer service. The assumption is that Jet.com has an incredibly efficient system that will integrate with Walmart’s system and work to provide great customer service. So far Walmart has not solved this puzzle. From the other comments today, there is some question as to whether Jet.com has the successful system needed. If not, this would be another example of Walmart not really knowing what they need for a great online system.

Arie Shpanya
Guest

It makes sense from an ecommerce perspective since Walmart’s online growth has slowed. I’m curious to see if/how they can integrate Jet into the Walmart marketplace.

Mihir Kittur
Guest

Ugam’s past analysis shows that Walmart is Amazon’s nearest competitor when it comes to offering competitive pricing and assortment, even if the gap between the two retailers is considerable. The acquisition will enable Walmart to bridge this gap by making use of Jet’s unique pricing algorithms. We can thus expect sharper pricing by Walmart whereby shoppers can get additional discounts based on their preferences.

However, smarter pricing alone will not be enough to dethrone Amazon. In addition to an attractive assortment and price offering, Walmart will need to provide a compelling shopping experience that customers have come to expect.

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