Walmart has bought Jet.com in a deal that also retains the high-flying start-up's CEO to revitalize the mammoth retailer's online operations.
Wal-Mart’s decision to buy Jet.com, a fast-growing e-commerce company, for $3.3 billion is being viewed as a shrewd move for both companies—one that strengthens their ability to compete with Amazon.
“While I cannot comment on the price paid, Wal-Mart’s acquisition of Jet.com makes perfect sense,” says Ken Cassar, principal analyst for Slice Intelligence, an e-commerce market research firm. “Both companies aspire to be leading online antagonists to Amazon and realized that pooling their efforts was the only way that could happen. Jet had developed a strong team, a good shopping experience, innovative new shopping tools and a quickly growing base of customers, but needed Wal-Mart’s capital and infrastructure to seriously challenge Amazon.”
Part of the deal involved securing Jet’s CEO, Marc Lore, to run both Jet.com and Walmart.com, reporting directly to Wal-Mart CEO Doug McMillon. Unusually, Lore has been locked in for five years—if he leaves before then, he will lose a chunk of cash and stock.
“Time will tell whether Doug McMillon’s decision to put Marc Lore at the head of both Walmart.com and Jet is prudent,” says Cassar. “Marc is a very strong entrepreneur with unparalleled experience in the e-commerce space. But we’ll have to see how Marc’s strong personality and Wal-Mart’s strong corporate culture mix.”
Market data from Slice Intelligence suggest that Jet could bring new growth, particularly in consumer packaged goods (CPG) categories, and new buyers to Wal-Mart’s online business, giving it an edge over rival Target.com.
CPG accounted for over a third of Jet’s revenue in the past year, but only 5% of Wal-Mart sales. Jet.com also attracts more affluent millennial shoppers than Wal-Mart, whose core customers are mostly older and female.
Jet.com woos the price-conscious with bulk-buying discounts. Shoppers can also save money by forgoing the chance to return goods. “Customers are even more in charge of the price that they pay,” says McMillon. “There’s an empowerment there for customers that we like.”