How Walmart.com’s track record led it to Jet.com — Introduction
Walmart spent a stunning amount of money on the two year old ecommerce company Jet.com. What justified such an investment from Walmart? While Jet quickly grew to a substantial scale, it paid heavily for its customers. It is likely that neither Jet.com’s current business, nor it’s product are the reason for the acquisition. In fact, many of Jet’s innovations don’t stem from irreplicable technology at all. Instead the innovation stems from a novel approach to conducting business online. The company created a fresh attractive brand and pioneered a uniquely transparent and modern approach to ecommerce. This results in a high quality shopping environment that attracts highly desirable partners and sellers, and of course: customers.
The first twenty years of Walmart’s ecommerce business have been lackluster. Walmart is culturally entrenched in its last generation business model, wherein the company’s numerous physical stores are the driving force. With Walmart consistently putting its resources into its retail business and underinvesting in ecommerce, it’s no surprise that the ecommerce operation hasn’t been advancing as hoped. It’s always been very easy for web and mobile to play second fiddle to Walmart’s massive physical retail business. The company has thousands of existing stores and hundreds of billions in retail sales, while mobile and web are comparatively nascent channels.
In 2016, Wal-Mart reached $14 billion in ecommerce sales — just 3% of its $482 billion in overall annual revenue. The company’s ecommerce sales grew 11.8%, while the overall market is growing 15%. This renders Walmart a distant second place to Amazon in ecommerce. Amazon hit $136 billion in total revenue in 2016 and is growing over 25% year-over-year. It’s a similar story when it comes to item availability. As of early 2017, Walmart.com offers 15 million different items for sale. This number has grown rapidly since the introduction of the Walmart.com marketplace, which allowed third party merchants to list their items for sale. Yet it remains incomparable to Amazon’s assortment of over 160 million items. As a shopper you never have to ask yourself if Amazon has an item. Walmart is clearly having trouble repeating its retail dominance as an ecommerce player. Faced with fierce competition online from Amazon, anything less than the best team and extensive investments are insufficient for Walmart.com to thrive.
In mid-2016 Walmart tried a new approach. It inked a deal to acquire Jet.com for roughly $3 billion in cash and $300 million in stock. A major portion of this amount was rumored to be devoted to employee retention, and therefore to be paid out over several years. Jet’s founder, Marc Lore, for example, is said to be heavily incented to stay with Walmart for five years — much longer than the average earnout.
What compelled Walmart to invest so much into the acquisition of Jet.com? What exactly does Jet.com represent? Is it the team, the technology, the brand, or something else? In this series we’ll dive into:
- The business that Jet.com’s has built
- The product that Walmart has purchased with Jet.com
- The real reason Walmart purchased Jet.com for more than $3 billion
