Walmart’s recent acquisition of Jet.com is the most expensive in US ecommerce history, and in comparison, makes Unilever’s buy-out of Dollar Shave Club seem like small money.
Purchasing the company for a whopping $3.3bn, it’s yet another example of a large investor banking on a ‘unicorn’ – i.e. a start-up that’s worth over a billion dollars.
So, what’s behind the buyout? Here’s a bit more on the story.
Walmart vs. Amazon
While Walmart remains one of the biggest retail giants (accounting for a tenth of all US retail sales), Amazon is head and shoulders above in terms of ecommerce.
The latter saw a growth of 20% last year as well as $99bn in annual online sales – this is compared with just a 12% rise for Walmart.
Consequently – though it’s unrealistic to think it will catch up – the acquisition of Jet.com forms part of Walmart’s attempt to close the gap.
Jet.com is not dissimilar to Amazon – it sells a wide variety of goods ranging from groceries and household products to tech and toys.
However, as well as targeting ‘urban millennials’, one of its most distinct features is its real-time pricing algorithm which offers customers lower prices if they add more items to their basket.
Likewise, it gives extra discounts if a customer forfeits the right to return an item.
Nicely aligned with Walmart’s position as a low-price, bulk-buy retailer, Jet will also help Walmart streamline its delivery and online logistics. The algorithm identifies vendors closest to the consumer to help minimise shipping costs.
With Walmart planning to integrate the software into its current ecommerce site, it is aiming to change the way consumers shop online.
Instead of making one-off, impulse-purchases from the likes of Amazon, it will encourage fewer and larger orders with less shipping costs.
The co-founder of Jet.com, Marc Lore, recently said that the combination of Walmart’s retail expertise and Jet’s technology will ‘deliver more value to customers’.
And this ethos appears to be behind the over-arching strategy to lure customers away from Amazon.
Ramping up its omni-channel efforts, it is hoping to move away from being just a bulk-buy, bricks-and-mortar store. Instead, it aims to offer a seamless shopping experience both on- and offline.
We’ve already seen examples of this. Along with its mobile app, last year the retailer introduced Walmart Pay – a way for consumers to purchase items using their smartphones in-stores.
Similarly, it offers free in-store pick-up on same-day orders.
Will it succeed?
Despite Jet’s position as an innovative start-up, there’s been a lot of debate over whether it will actually deliver any return on Walmart’s mega investment.
Although it has added around 350,000 customers a month since its launch a year and a half ago, the company is not yet profitable.
In the short-term, the acquisition will certainly allow Walmart to rapidly expand its ecommerce business.
Whether or not it will succeed in winning over any of Amazon’s loyal customer-base remains to be seen.