What a Potential Exit of Jet.com to Walmart Would Mean

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People are trying to make sense of the Walmart Jet.com rumor.

Fahim Naim, from eShopportunity, at VentureBeat on Walmart’s ecommerce success or lack thereof:

The timing is interesting, though, because Walmart is in the very early stages of several new e-commerce initiatives, including its ‘Amazon Prime killer’ ShippingPass and its commitment (a couple of billions of dollars worth) to improving the e-commerce experience via its website, app, and fulfillment (more on that below). The alleged talks with Jet come hardly a month after the nationwide rollout of ShippingPass, which would seem to suggest that the initial results of ShippingPass’ 30-day free trial weren’t overly optimistic. Also, this comes a month after Walmart sold its e-commerce business in China.

While U.S. e-commerce sales are expected to double from 2015’s figure in the span of just five years, Walmart — the second largest U.S. e-commerce retailer — has been experiencing significant slowing in its online growth. Sales growth has slowed for the past five quarters and has trailed the economy-wide e-commerce growth rate for nearly a year. While this potential acquisition could be one of Walmart’s biggest acquisitions ever, the company has trialed a variety of initiatives recently to accelerate its e-commerce growth, and Jet would be its biggest bet yet. (…)

Naim sees an, although small, upside for Walmart in buying Jet.com:

While Best Buy, Walmart, and others have struggled with scaling marketplaces, effective third-party marketplaces remain the biggest threat to Amazon. It would be extremely difficult for any new competitor to defeat Amazon in traditional wholesale retail models and investing in distribution centers and fulfillment. But scaling an efficient marketplace — as is the dominant model in Asia — is the best bet for anyone to make a serious dent in Amazon’s e-commerce market share in the U.S. The rapid rise and acquisition of Jet would undoubtedly motivate new players to step up to the challenge.

Jason Del Rey at Recode:

While Amazon’s success has largely been built around the convenience of its Amazon Prime membership program, Jet has been primarily focused on trying to beat everyone on price. It’s a strategy that won’t topple Amazon, but one that could make a dent with the help of Walmart’s existing pricing power and logistics network.

Walmart would also be acquiring a leadership team led by Lore that is widely viewed as having some of the best e-commerce operations minds in the business. Any deal would have to be done with the idea that Lore would stay on for several years. (…)

> In Jet, Walmart would be acquiring the startup’s sophisticated pricing technology, which provides discounts to shoppers based on factors such as order size and proximity to partner warehouses. Shoppers typically save more as they add more items to their virtual cart.

I am not certain Jet.com’s “sophisticated pricing technology” would be worth the reported $3 billion. And neither would be Jet.com’s (probably very price focused) 3 million customers.

But let’s get back to the paragraph about the team: This is what I am trying to wrap my head around since the rumor got public yesterday. Lore and team are very good at operations, no doubt. Diapers.com was an early manifestation of this, and Jet.com is certainly not unimpressive. But both Diapers.com and Jet.com are missing out on the strategic part. Operations alone are not enough. (This is why both Diapers and Jet.com were/are concentrating on price.)

Is Walmart looking for an operations team for its ecommerce efforts? Combining a seasoned team with Walmarts ressources, and a separate online entity with Jet.com, will move the needle for Walmart. But it will be no threat to Amazon. Like I said yesterday, neither Jet.com nor Walmart have an appropriate answer to Amazon Prime yet. And Amazon Prime is their biggest threat. On the other hand, just days ago we saw a cautionary tale in Walgreens and Drugstore.com. The aquisition of the latter by Walgreens most certainly started with similar internal discussions as are happening right now at Walmart.

For what it is worth, Tamebay sees Jet.com as an already strong marketplace in the U.S.:

Jet aims to save you money where they can and they do – they rapidly became ChannelAdvisor’s number 4 marketplace in the US beating established players Sears, Best Buy, Newegg, Tesco, and Rakuten.

For context on Walmart and Amazon, Jason Del Rey at Recode:

On the Walmart side, its e-commerce efforts have largely been viewed as a failure in recent years for a retailer of its size and power. Annual revenue for the division is around $14 billion, compared to $99 billion for Amazon, excluding Amazon’s AWS cloud computing unit.

So, I still don’t see much upside on this rumored deal.

For (U.S.) online retailers, Jet.com was/is a ray of hope. Finally, venture capitalists were, at least once, willing to put some serious money behind a new ecommerce player who wants to go against Amazon. Weirdly, Silicon Valley VCs are usually afraid of Amazon and hence don’t invest much in ecommerce.

An early exit of Jet.com to Walmart, although lucrative to its investors, will send the wrong signal to the industry. You can’t build a new stand-alone online retailer going eye to eye with Amazon, people will say. I don’t believe that. The growth of the online retail market and its eventual scope leave room for much more. Even in the U.S. today. Even with Amazon growing like weed.

It just takes people willing to step in.

More on this topic:

10 comments

  1. […] by now, it is rather fascinating how little Amazon’s competitors have to offer in response. Walmart and Jet.com are just the most recent examples of legacy and new competitors struggling to find an answer to […]

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  2. […] (Bloomberg talks of a a $1 billion gross merchandise run rate.) ​ I wrote a few days ago about the team behind Jet.com: […]

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  3. […] What a Potential Exit of Jet.com to Walmart Would Mean […]

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  5. […] * Walmart & Jet.com as “two survivors of a nuclear apocalypse meeting on the wasteland” * What a Potential Exit of Jet.com to Walmart Would Mean * WSJ: Walmart in Talks to Buy Online […]

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  6. […] going public within the next years and making a real dent in its market. Both exited rather early.) As I wrote when the deal between Jet and Walmart was not yet public but […]

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  7. […] What a Potential Exit of Jet.com to Walmart Would Mean […]

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