For years, Walmart has been the definitive store for retail shoppers until Amazon came along. One day shipping, Prime benefits, and a cutthroat approach to the business have made Amazon become a giant that it is today. Walmart started to feel the burn and bought Jet.com in hopes to compete on Amazon’s home turf. Unfortunately for them, the decision isn’t turning out to be a good one.
What’s happening at Walmart?
Jet.com was one of the riskiest bets for Walmart as it was the biggest acquisition in e-commerce history, taking away $3.3 billion from the company’s coffers. The e-commerce site was growing quickly but was losing money even fast. Interestingly, no one else was bidding for Jet and Walmart, in its desperation to compete with Amazon, took the risk. Another thing to note here is that Jet founder and CEO Marc Lore sold his Diapers.com business to Amazon earlier. Walmart CEO Dough McMillon knew he found the man for the job, but things don’t look easy now.
On the bright side, Walmart’s stock price has gone up by 53% since the Jet acquisition, and its online sales have gone up by 40% in last year alone. Their online grocery business, digital-first brands, etc. have helped the company grow in the online space. But when it comes to competing with Amazon, it is barely getting started.
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The problems within Walmart
Walmart’s losses from the e-commerce business are estimated to be over $1 billion in the US, while its revenue is between $21 billion and $22 billion. Such figures drag Walmart to Amazon’s territory- a fast-growing business that took years to become profitable. Historically, Walmart has been profitable, and its businesses brought $7 billion in profits last fiscal alone.
Walmart’s discomfort with the losses is evident in its increasing pressure on Lore to cut losses, as reported by Recode. It may also plan to sell online fashion brand ModCloth. The tensions are rising among core business executives of Walmart who believe that Lore is getting undue credit for the online grocery business success for the company.
Walmart’s quick success is important in the e-commerce business. If the giant retailer misses the mark, Amazon will get an even bigger hold of the market. Lore doesn’t have the entire executive army of Walmart executives by his side, but he is pitching a larger network of warehouses across the country, which will make the company spend several billion more.
Currently, Walmart has only 20 fulfillment centers in the US. Amazon has 110, over 5x of what Walmart can offer. With the same day delivery and next day delivery features becoming the norm, Walmart can’t help but lose a few more billion dollars before it is finally able to compete with Amazon’s ranks. For now, the company has a lot of ground to cover.
