Wal-Mart buying Jet.com to lift online sales, battle Amazon

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Wal-Mart Stores Inc (WMT.N) said on Monday it would buy online retailer Jet.com for about $3 billion, the largest-ever deal for an e-commerce startup, as it pushes to revive its underperforming Web business to compete with market leader Amazon.com Inc (AMZN.O).

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

Wal-Mart has spent billions to build up its e-commerce business over the years. Its efforts included offering two-day shipping at half the price of Amazon’s Prime shipping program, opening massive e-commerce distribution centers and hiring thousands of workers.

Yet Wal-Mart’s online division has struggled, posting its slowest growth in a year in the first quarter.

Wal-Mart said it would pay around $3 billion in cash for Jet, part of which would be paid over time. They will also pay an additional $300 million in shares over time.

The retailer would 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, but run Wal-Mart.com and Jet.com as separate entities, Wal-Mart spokesman Dan Toporek said.

Moody’s retail analyst Charlie O’Shea said the acquisition gives Wal-Mart “a definite leg-up on its competitors in the very important race to be number two online.”

“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,” he said.

In June, Wal-Mart said it sold a majority stake in Chinese e-commerce firm Yihaodian to JD.com Inc, China’s second-largest e-commerce company.

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

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

It has not said what it spent on the acquisitions, but prior to this deal disclosed 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.

Jet.com was launched by internet entrepreneur Marc Lore in July last year. Wal-Mart did not comment on who will run its new e-commerce business. Earlier media reports suggested it could be Lore. He previously cofounded Quidsi, the owner of sites like Diapers.com and Soap.com, which was sold to Amazon.

The decision to run Jet as an independent website is a good step but the price paid is high, UBS retail analyst Michael Lasser said in a note.

“The $3 billion purchase price seems pretty steep for a business that may not have made any money and probably won’t for some time.”

Jet has reached $1 billion in gross merchandise value, or the total value of transactions on its platforms, and offered 12 million items in its first year. It has added more than 400,000 new shoppers monthly, Wal-Mart said.

Those results would give Wal-Mart the scale to bolster its online presence, broaden its assortment and offer the lowest prices at the same time, analysts said.

Wal-Mart has said previously it wants to expand its online selection from around 10 million items to the tens of millions over the next few years. Rival Amazon has more than 200 million items for sale online.

Source: Reuters/Business

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