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August 9, 2016

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Wal-Mart pays US$3.3b for online retailer Jet.com

Source: AP | August 9, 2016, Tuesday | Print Edition

WAL-MART has agreed to buy fast-growing online retail newcomer Jet.com, which had launched with a splash a year ago when it announced its intention to challenge online leader Amazon.

Wal-Mart is paying US$3 billion in cash and another US$300 million in stock.

The deal announced yesterday underscores how serious Wal-Mart is about igniting its online business, which has been slowing even as it has been making big investments in new distribution centers and expanding services.

Buying Jet.com would let Wal-Mart compete more effectively with Amazon.com and other online retailers. The deal also reflects the difficulties for startups like Jet.com to make it on their own in a sphere dominated by Amazon.com with its network of distribution hubs and the powerful asset of its Prime membership program.

The acquisition is expected to be completed this year upon regulatory approval, according to Wal-Mart.

Buying Jet.com will help Wal-Mart grab a higher-income customer who typically is younger. Jet.com has more than 400,000 new shoppers added monthly and an average of 25,000 daily processed orders. Wal-Mart says that it will also be incorporating some of Jet.com’s “smart” technology that lowers prices in real time by looking for ways to cut costs. For Jet.com, which has been pouring money into splashy TV ads and other marketing, it will provide big financial backing.

The move follows a series of acquisitions by major traditional retailers of online startups in an extremely competitive landscape. In January, Hudson’s Bay, which owns Saks Fifth Avenue, purchased flash-sales site Gilt Group. And in June, Bed, Bath & Beyond scooped up One Kings Lane.

“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,” said Doug McMillon, president and CEO, in a statement.

Marc Lore, co-founder and CEO of Jet.com noted in a statement that the combination of Wal-Mart’s retail expertise, purchasing scale, sourcing capabilities, distribution footprint and digital assets together with the team, technology and business we have built at Jet will allow the company to deliver more value to customers.

Jet.com, launched in July 2015 under Lore, set out to reinvent the shopping cart. It now sells 12 million products, from jeans to diapers, coming from more than 2,400 retailers. The company, which touts its service, delivers to two-thirds of the country overnight in its purple boxes. In New York City, Jet often can provide same-day delivery at no additional cost.

Wal-Mart said in May that global e-commerce sales rose 7 percent in the first quarter, below the 8 percent in the previous quarter and far below the 20 percent hikes seen less than two years ago.

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