Tue | Aug 22, 2017

Wal-Mart buying online retailer Jet.com

Published:Tuesday | August 9, 2016 | 8:00 AM
Reusable shopping bags on display in a Wal-Mart store.

Wal-Mart is buying fast-growing online retailer Jet.com for US$3 billion in cash plus US$300 million in stock, scooping up a newcomer that launched a year ago with the intention of challenging online leader Amazon.

The deal announced on Monday shows that Wal-Mart is trying to compete more aggressively and effectively as it has seen its online business growth slow, even with big investments in distribution centres and expanding services.

Analysts say Wal-Mart buying Jet.com still will not enable it to catch up to Amazon in sales, but it will help widen the gap between itself and other retailers online. The deal also reflects the difficulties for start-ups like Jet.com to make it on their own in a sphere that Amazon dominates with its network of distribution hubs and the powerful asset of its Prime membership programme.

"This acquisition. in tandem with its joint-venture in China with JD.com, demonstrates that Wal-Mart is attacking online retail with significant zeal," said Moody's lead retail analyst, Charlie O'Shea. "As we believe 'catching' Amazon online is an unrealistic goal for any brick-and-mortar retailer, Wal-Mart now has a definite leg up on its competitors in the very important race to be No. 2 online."

As part of the deal, which Wal-Mart expects to close this year upon regulatory approval, Wal-Mart Stores Inc and Jet.com will maintain separate brands.

The acquisition will help Wal-Mart grab a higher-income customer who typically is younger than its own shoppers. Jet.com, launched in July 2015, sells 12 million products, from jeans to diaper and has been growing fast. It has more than 400,000 new shoppers added monthly and an average of 25,000 daily processed orders.

Jet.com, which touts its

service, delivers to two-thirds of the country overnight in its purple boxes. In May, Marc Lore, co-founder and CEO of Jet.com, told The Associated Press that Jet.com had expected to reach overall profitability in 2020 and to hit US$20 billion in general merchandise value with 15 million customers.

Lore also has experience competing with Amazon as CEO of Quidsi, whose main site was diapers.com. Eventually, it bought him out for more than US$500 million back in 2010. The Wall Street Journal reported that Lore will take a senior leadership position on the e-commerce side of Wal-Mart and that Wal-Mart's top online executive, Neil Ashe, is expected to depart. Wal-Mart and Jet.com each declined to comment on that.

In its fiscal year ended in January, Wal-Mart had online sales of US$13.7 billion, a fraction of its total revenue of US$482.1 billion. And its online figure pales in comparison to Amazon.com's annual net revenue of US$107 billion.

O'Shea noted that Apple.com is the only brick-and-mortar retailer that outranks Wal-Mart in online sales in the United States.

Wal-Mart reported in May that global e-commerce sales rose 7 per cent in the first quarter, weaker than the 8 per cent in the previous quarter and far below the 20 per cent increases seen less than two years ago.