Boosting E-Commerce and Battling Amazon Pushes Wal-Mart to Buy Jet.com

As Wal-Mart races to build up its underperforming web business to compete with market leader Amazon.com Inc, the U.S. retail giant announced that it would buy online retailer Jet.com for about $3 billion, the largest-ever deal for an e-commerce startup.

As the world’s largest retailer tries to also be a dominant player online, the Jet deal would be Wal-Mart’s biggest yet in a five-year e-commerce acquisition spree.

Posting its slowest growth in a year in the first quarter, the online division of Wal-Mart has struggled in recent times.

Part of the $3 billion in cash that Wal-Mart has offered for Jet would be paid over time. An additional $300 million in shares would also be paid by Wal-Mart over time.

Wal-Mart spokesman Dan Toporek said that the retail giant would run Wal-Mart.com and Jet.com as separate entities but would work to integrate Jet’s pricing software – which allows the startup to lower prices as a customer adds items to their shopping cart – on its own website.

The acquisition gives Wal-Mart “a definite leg-up on its competitors in the very important race to be number two online,” said Moody’s retail analyst Charlie O’Shea. “The impact on Amazon will be fairly benign. However, this acquisition, in tandem with its joint-venture in China with JD.com, demonstrates that Walmart is attacking online retail with significant zeal,” O’Shea added.

Wal-Mart had stake in Chinese e-commerce firm Yihaodian to JD.com Inc, China’s second-largest e-commerce company and the U.S. company said that it had sold its stake in the Chinese company in June.

Down from 8 percent, 10 percent, 16 percent and 17 percent in the previous periods, Wal-Mart’s online sales grew 7 percent in the first quarter. Compared to the jump of more than 16 percent for Amazon.com to $92.4 billion, Wal-Mart’s online sales rose 12.3 percent to $13.7 billion in 2015.

In an attempt to bring in the talent and technology needed to drive online growth, Wal-Mart has already bought 15 startups.

A total of $3.1 billion for e-commerce and digital projects, such as its platform and new warehouses, in the four fiscal years to January 2017 would be spent by the company even though Wal-Mart has not said what it spent on those acquisitions.

Internet entrepreneur Marc Lore launched Jet.com in July last year. A pricing formula that took into account factors such as the number of items customers added to their shopping cart is used by the company to offer large discounts and this was the initial strategy of the startup.

The question of who will run its new e-commerce business was left unclear by Wal-Mart. Earlier media reports suggested it could be Lore.

Jet has offered 12 million items in its first year and reached $1 billion in gross merchandise value (GMV). It is the total value of transactions on its platforms. Wal-Mart said that the platform managed to get an average of 25,000 daily processed orders and has added more than 400,000 new shoppers monthly.

Analysts say that Wal-Mart’s online presence would be boosted, its assortment broadened and the lowest prices could be offered at the same time with the deal going through.

(Adapted from Reuters)

 

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