Amazon.com Inc is without doubt the leading online store and it prides itself as the place where you can buy everything. Amazon’s market leadership is a function of its first-mover advantage into e-commerce when brick and mortal stores were still stuck in the traditional model of opening and running physical stores.
However, most traditional retailers have seen the need to go digital and many new upstarts have emerged in the online retail industry. You have heard about Jet.com and you have read about how it is a nimble online retailer with the sole intent of displacing Amazon; or at least, stealing significant market share from Jeff Bezos’ company.
Walmart is set to buy Jet.com to fend off Amazon
News broke today that Wal-Mart is in talks to buy Jet.com in a surprise move that could lead to the emergence of a rival that is big and tech-savvy enough to tackle Amazon. The details of the deal are still sketchy but Wall Street Journal thinks the deal might cost Wal-Mart as much as $3B. In July 2015, Jet launched with a $600M valuation – the subsequent media hype helped the startup attract another $500M from investors. Its last round of private-market valuation places its worth north of $1.55B.
If Wal-Mart succeeds in acquiring Jet, the firm could have a shot at competing effectively with Amazon for market share. To start with, Jet’s brand is still small and it can be easily absorbed into the Wal-Mart brand. Secondly, Jet could provide Wal-Mart with data on young and upwardly mobile, tech-savvy urban buyers. The buyout will also provide Walmart with Jet’s pricing software and “smart cart technology”.
Neil Saunders, the CEO of the retail consulting firm Conlumino observes that “While Walmart does have an e-commerce offer, it is somewhat jumbled and unfocused which makes it hard for the company to compete with the likes of Amazon in specific areas like household essentials… To an extent Jet remedies this and would give Walmart a much more focused and powerful offering and platform with which to compete against Amazon.”
Will Wal-Mart’s acquisition of Jet help in it in the retail wars?
Irrespective of the corporate doublespeak that Walmart will release after it acquires Jet, it is clear that Wal-Mart is seeking to buy Jet in order to compete effectively with Amazon. However, it is still a little premature to conclude that Jet will help Wal-Mart catch up with Amazon in the retail race. For one, Jet is still young and unproven and its $1.55B private market valuation is based on the feats that it hopes to accomplish in the future.
Secondly, Jet might slow down the thrust that Wal-Mart has been enjoying in its financials. Wal-Mart reported more than $13B in revenue in the last 12 months but Jet has been burning holes in its pockets as it seeks to attract customers and expand its user base. Jet has been making regular trips to the investment markets to seek funding in order to avoid running out of money; hence, it is obvious that its business is still far from being sustainable.
Finally, Amazon outmaneuvered and stayed ahead of Jet in more than one instance. In May, Amazon bought some private labels in order to secure the loyalty of its customers. Jet has also not been able to crack the code on successful membership subscription models in the same way that Amazon generates revenue from Prime. Unless, WalMart knows something that is hidden from the rest of the market, the Jet deal is not likely to move the move the needle significantly against Amazon.