Posted by Ingrid Lunden (@ingridlunden)
Walmart today took its biggest step yet in its bid to compete against Amazon in the world of digital commerce: today the retail giantannounced that it would be acquiring Jet.com — an online-only shopping site that has been live for a little over a year — for $3 billion in cash, plus up to $300 million in shares for the founders and others at the company.
Jet.com will continue to retain a separate brand, Walmart said today. The deal is expected to close by the end of this year, subject to regulatory clearance.
“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, Wal-Mart Stores, Inc in a statement. “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.”
The news caps off a week of reports that Walmart was in talks to buy the company, with several sources telling others (and us directly) that the price tag would be precisely this amount.
The deal adds a fast-growing e-commerce marketplace to the world’s biggest brick-and-mortar retailer. Walmart today has 11,527 stores in 28 countries, including brands like Sam’s Club and 63 other ‘banners’; it serves 260 million customers each week; posted $482 billion in revenue in fiscal 2016; and employs 2.3 million people (!).
In its first year of operations, Walmart said that Jet.com had reached $1 billion in run-rate Gross Merchandise Value (GMV) and 12 million SKUs, as well as a customer base that is seeing 400,000 new shoppers getting added monthly and an average of 25,000 daily processed orders both from direct sales and a network of 2,400 retailer and brand partners.
On Walmart’s side, it’s interesting to see the company making a move to invest so deeply into building out its e-commerce business.
Walmart may be the world’s largest retailer, but it has also beendownsizing in areas where it was less profitable, for example in its experiment to sell items in smaller shops branded Walmart Express.
And, in continuing to try to anticipate what the next big growth area will be for the company, through its Jet.com acquisition, Walmart is once again trying to have a crack at dominating online.
Last quarter, while Walmart beat expectations on revenues and sales, the company’s CFO Brett Biggs also acknowledged that its 7% growth in e-commerce was not as strong as the company wanted it to be. And there has been little heard about WalmartLabs, the division of the company that was formed to focus specifically on new technologies and retailing models.
“WalmartLabs is alive and well,” a spokesperson told me. “It will continue to power the technology behind our e-commerce capabilities across stores, online and mobile around the world. It’s important to note we have eCommerce sites in 11 countries under the Walmart, Sam’s Club and other brands — United States, United Kingdom, China, Brazil, Canada, Japan, Mexico, Argentina, India, Chile, and South Africa. Jet.com brings assets and capabilities that complement our existing eCommerce business.”
While reports about the deal before it was announced all hinted that Marc Lore, Jet’s CEO and co-founder, would come on to run all of Walmart’s e-commerce business, this has not been confirmed in today’s announcement. (We have asked Walmart about it and the company says it’s not detailing this ‘yet’. The company’s CEO is going to host a conference call with journalists later today and we’ll update with more after that.)
“We started Jet with the vision of creating a new shopping experience,” Lore said in a statement. “Today, I couldn’t be more excited that we will be joining with Walmart to help fuel the realization of that vision. 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.”
Jet.com: flying high or yet to take off?
Walmart did not reveal anything about Jet.com’s total number of customers, monthly or annual revenues or profitability, but before acquisition Jet.com had projected it would remain in the red until 2020.
In that regard, while the company has clearly grown fast (and with a strong cash injection), it was still young and had a lot left to prove.
Indeed, Jet.com’s ambitions and positioning have in some ways far outstripped what the company has actually achieved in its relatively short life as a startup, with early investor interest, it seems, largely based on the strength and vision of the founding team. That team included and was led by Marc Lore, founder of Quidsi — the umbrella company for Daipers.com, Soap.com and BeautyBar.com — who then sold the company to Amazonfor $545 million in 2010.
Founded in 2013 by Lore, Mike Hanrahan and Nate Faust, the company had raised hundreds of millions of dollars (upwards of $500 million, but possibly more like $800 million unreported) at a steadily rising valuationbefore finally launching in July 2015.
The $3 billion that Jet.com has now sold for, in fact, was one valuation that the company was reportedly floating for a funding round it was trying to raise for the end of last year.
And more worrying for competitors, its funding rounds included investments from another company that likely keeps Amazon and Walmart up at night: Alibaba.
As a startup, Jet.com has had some distinct ups and downs.
When it first opened its virtual doors for business, Jet.com was modelled on the model made popular by services like Amazon Prime and Costco, where users had to be members ($50/year in Jet.com’s case) in order to shop for discounted goods on the site.
That fee was dropped only three months after the site went live in order to bring in more users. Instead of offering discounts to members, Jet.com spread the discounts across the range of all its products.
And there were other issues beyond scaling. For example, to increase the number of products on its platform, early on Jet.com ran into trouble with several brands after linking to their own sites without permission.
Jet.com was also still very young as an enterprise, with operations only live in the U.S. However, there was at least one other domain name registered by Lore, in the UK, which pointed potentially to at least one launch in Europe in the near future.
Jet.com had projected that it would only reach profitability in 2020. It will be interesting to see how and if that gets accelerated under Walmart and with the massively bigger economy of scale that this brings Jet.com. Indeed, that is something that Walmart is already highlighting.
“With this complementary platform and new customers, we see potential synergies in product cost, shipping, fulfillment and integration of technology platforms,” the Walmart spokesperson said. “Jet can help Walmart and Walmart can help Jet.”
Updated with comments from Walmart.
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