On Monday, Walmart announced that it is buying two year-old online retail upstart Jet.com in a cash and stock deal worth $3.3 billion.
Jet.com, which launched publicly in July 2015, was co-founded by Marc Lore, who co-founded Quidsi, the parent company of Diapers.com, Soap.com and Wag.com. Quidsi was sold to Amazon in 2011 for $545 million and Lore worked for the online retail giant following the acquisition.
After he left Amazon, Lore decided to jump back into the online retail game with a new model. Jet.com, which raised over $800 million in its short life as an independent company, would charge a $50 annual membership fee, employ dynamic pricing, and use a variety of pricing incentives. These include discounts for paying with debit instead of credit cards, or for purchasing products that are located in the same distribution center.
Despite a somewhat rocky start and no apparent intent to turn a profit, in the past year, Jet.com built a business processing 25,000 orders daily, adding 400,000 customers each month and having a $1 billion gross merchandise value (GMV) run rate.
“We’re looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that’s what our customers want,” Walmart president and CEO, Doug McMillon, stated.
“We believe the acquisition of Jet accelerates our progress across these priorities. 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. Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Walmart.”
In addition to its “best-in-class technology” and 2,400 retailer and brand partners, Walmart noted that Jet.com has a “growing customer base of urban and millennial customers.”
That was likely a major attraction to Walmart, which is trying to compete with Amazon online with limited success. Last month, Walmart made its Amazon Prime competitor, ShippingPass, available to all customers, but reports suggest that the company was growing impatient with its online progress.
As the New York Times noted, Walmart’s online sales grew by just 7% last quarter, a rate Walmart’s McMillon called “too slow.” Amazon continues to grow at a much faster clip despite the fact that it has a much larger online revenue base.
Walmart will continue to run Jet.com as a standalone property, and Jet.com’s Lore is said to be taking over responsibility for Walmart.com post-acquisition.
While Jet.com’s business arguably isn’t worth $3 billion today, Walmart appears to be betting that Lore’s experience and expertise offers the best hope of catching up with Amazon before it’s too late.
Amazon Prime was launched in 2005 as an express shipping membership program and more than a decade later it has tens of millions of subscribers who enjoy a lot more than just free, fast shipping on millions of products Amazon sells.
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