Can Jet.com Provide Walmart the Arsenal it Needs to Challenge Amazon?

2016-08-16 | FMI | Retail and Consumer Products

The news that created massive ripples on Aug 8 continues to have an aftereffect on people associated with the North American retail market. The acquisition of Jet.com by Walmart for a whopping US$ 3.3 Bn is being billed as the biggest e-commerce deal yet. What we know so far is that the retail giant Walmart will pay US$ 3 Bn in cash and additional US$ 300 Mn worth of Walmart stocks to Mark Lore’s privately-held e-commerce company, Jet.com.

Headquartered in New Jersey, Jet.com is an American e-commerce website for online sales of consumer goods and retail products. Mark Lore, the founder and CEO of Jet.com, started the company in 2014 with the help of venture capital financing; how he worked on it to make it a billion dollar enterprise in such a short span is another story for another time. Its suitor, the Bentonville-based multinational retail corporation, hardly needs an introduction as Wal-Mart Stores, Inc. is the quintessential retail chain with a reputation and presence that few others have managed to emulate. While the announcement created hysteria and anticipation, the focus has now shifted to analysing the repercussions of a deal of such scale and ambition.  

Retail Aid for Jet.com

Walmart CEO Doug McMillon’s decision of replacing Neil Ashe with Marc Lore as the head of their global e-commerce division is the foremost effect of the acquisition deal. In many ways, this move looks profitable for Lore as well as Jet.com. Barring some feasible contingencies, Lore will be able to remodel the e-commerce strategies of Walmart and improve the online sales with Jet.com’s unique business model that offers customers to bundle products together and save money by claiming the bulk-price remissions. At the same time, Jet.com will be completely owned by the retail corporation and will continue to sell groceries and retail products as usual.

The biggest support for Jet.com is being backed by Walmart’s retail proficiency, especially in terms of ample availability and guaranteed authenticity of consumer products. The Jet-founder touted this deal as the most strategic incorporation of retail and e-commerce in order to challenge the dominance of Amazon.com. A comprehensive breakdown of the deal indicates a good move to help Jet.com prosper its business beyond the domestic grounds. Walmart’s international consumer base will boost the online sales, but is also expected to damper the existing facets of online trade on Jet.com. The reluctance of Jet-shoppers in buying from Walmart could lower the prominence of the e-commerce website.

Furthermore, Walmart’s core customer issues might impose an undulating influence on Jet.com’s existing consumer base. But, Lore is optimistic about the acquisition by saying, “The combination of Walmart’s retail expertise, purchasing scale, sourcing capabilities, distribution footprint, and digital assets–together with the team, technology and business we have built here at Jet–will allow us to deliver more value to customers.”

E-Commerce Expansion for Walmart

The lower prices and shipping facilities of Jet.com will incite online sales for Walmart, which is a major contest for the retailing juggernaut. The CEO McMillon addressed this benefits of this premeditated acquisition by telling how, “Walmart.com will grow faster, the seamless shopping experience we’re pursuing will happen quicker and we’ll enable the Jet brand to be even more successful in a shorter period of time.”

Walmart is likely to be positively affected Jet.com’s millennial consumer base, and will cater to the demand of the younger demographic. Adding almost a quarter-million customers every month by Jet.com will significantly expand the e-commerce business for Walmart. However, the underlying fact of the acquisition deal remains to be the mutual move by Walmart and Jet.com to tackle the e-commerce business of Amazon.com.

Teaming Up Against Amazon

The merger of Jet.com and Wal-Mart Stores, Inc. must have brewed a lot of heat at the head offices of Amazon.com. Being the leader of e-commerce makes Amazon highly susceptible to staunch and fierce competition. Detracting the e-tailing sales of Amazon.com remains to be the fundamental motif of the acquisition deal. But, lowering product prices and offering off-season discounts won’t be enough for Walmart and Jet.com to overtake Amazon.com’s e-business.

Walmart’s acquisition of Jet.com does represent a wise move as the retail honcho astutely chose an established e-commerce company having the common intent of challenging Amazon.com’s business. By comparison, Amazon.com generates over US$ 100 Bn in e-sales, which is far more than the collective revenues of Walmart and Jet.com. The cloud computing division at Amazon.com is also siphoning higher revenues, creating an adverse impact on the retail sales of Jet.com and Walmart.

Similar mergers in the past have attempted in hampering the supremacy of leading e-commerce giants. QVC’s acquisition of Zulily.com and Unilever buying Dollar Shave Club are identical to the Walmart-Jet.com deal. Moreover, Marc Lore’s startup, Quidsi was bought by Amazon.com in 2010 for over half a billion dollars, prior to the conceptualisation of Jet.com. Now that Jet.com has Walmart’s patronage, it will be interesting to see how the acquisition overhauls online business for Amazon.com.