Jet.com: a Walmart company?

I talked about Jet.com a year or so ago in response to media coverage about the online supermarket created by Marc Lore in the wake of his non-compete deal with Amazon after selling Diapers.com. Even before it had sold a thing, the project had attracted $220 million in financing and an evaluation of $600 million, thanks in large part to the reputation of its founder.

Since then it has eliminated the membership fee idea, has had problems with distributors that linked its page on the basis that it would pay commissions for users who clicked on it, has burnt more than half a billion dollars in its first year, forcing it to organize new financing rounds, and is now valued at $1.550 million. According to Marc Lore, the supermarket no longer wants to dethrone Amazon, and would settle for a reasonable share of the distribution business.

Now rumors are circulating that Walmart wants to buy Jet.com. Like most other traditional players, Walmart has not been able to come up with a successful online strategy and is losing money on each transaction. The evaluation people are talking about, $3 billion, is double that used on the last financing round and is a high price to pay for a company that still hasn’t really proved that it works. In December 2015, it turned over barely $33 million, although by May of this year that figure had risen to $90 million, but these are very low figures for the industry. At the same time, Jet.com is spending more than $20 million a month on advertising alone.

But the deal could make sense for Walmart. Jet.com tried to buy Diapers.com for $600 million only to find that Amazon had purchased it for $540 million after an aggressive maneuver to lower its prices in that product category. For Walmart, buying Jet.com would be something of a second opportunity by allowing it to incorporate a team with online sales experience, a pure player that could possibly improve its offer by leveraging the volumes shifted by the parent company.

After several years of hard work, Walmart has achieved sales of $14 billion online, compared to Amazon’s almost one hundred million, excluding AWS. The idea that Walmart could ever catch up with Amazon, now growing at 30% annually, and responsible for half of e-commerce growth in the United States, is impossible.

The chance to buy Jet.com, and above all to tie its founder in to the deal, could be attractive for a giant that seems unable to transfer its supremacy to the internet and that sees that with Jet.com it would acquire some important technological assets that would otherwise take a long time to develop.

This operation will be closely watched by other distribution giants around the world, most of whom are going through similar problems to Walmart: launching online sales because they have to, but with no clear idea of how to finance this part of the business, which customers used to do free of charge, but that now somebody has to pay for.

Being able to buy online from a supermarket isn’t the issue here. The issue is whether that operation makes financial sense for the supermarket, or if it is financing it because it has no choice and because its online sales are still negligible.

The online business is a very different animal to traditional shopping, and dominating it requires a very special expertise, so buying a competitor that has that expertise is not a bad idea, but as with all acquisitions, the proof of the pudding will depend on how well that team is integrated.


(En español, aquí)