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Does the WalMart Acquisition of Jet.com Even Matter? Guest Post Jesse Tron.

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Does the WalMart Acquisition of Jet.com Even Matter?

Do I have your attention? Good. Is the headline a bit hyperbolic? Of course (but who cares, I got your click didn’t I?…kidding). However as currently structured, is this an industry altering move? It’s obviously “newsworthy” as the $3.3 billion buy is the largest e-commerce company acquisition ever; topping last year’s QVC purchase of Zulily.com for $2.4 billion (but what’s a billion between friends, right?). But beyond it being historic from a monetary perspective, there’s not much here to fundamentally alter the retail landscape in the short-term.

Walmart is already the second most trafficked retail website in the U.S. behind you know who. So, while this deal should certainly help Walmart solidify its number two position in the e-commerce arms race – it’s not enough to catch Amazon Moody’s lead retail analyst Charlie O’Shea told USA Today. “No one catches Amazon online,” he says. “The key is to be number two. (Acquiring Jet) helps differentiate Walmart and give it a leg up on its brick-and-mortar brethren.”

To be fair, the current gap between the two retailers is still sizeable when it comes to online sales – $14 B for Walmart to Amazon’s $100B (although Walmart still dwarfs it’s would be competitor in total sales). And, by Walmart CEO Doug McMillion’s own admission, the growth in their e-commerce sales relative to the rest of the industry has been too slow. So acquiring Jet gives Walmart access to their proprietary technology that has given them the ability to scale at speed (Jet reached 12 million different products in just one year) while giving them access to Jet’s growing (400k new shoppers monthly) urban and millennial skewing customer base – which as CNBC points out is not Walmarts current demographic. But, probably the biggest part of the acquisition has to do with “who” and not “what.” Through the acquisition the speculation is that Jet co-founder, Marc Lore, will likely take over as head of Walmarts global e-commerce business – which as Shelly Banjo on Bloomberg Gadfly asserts is the “one thing about the deal that does make sense.”

Why that take you might ask? Well, probably because Jet.com isn’t profitable and, in fact, CEO Marc Lore wasn’t predicting it to be until 2020. Walmart’s McMillion believes that through economies of scale, Walmart will help Jet beat that expectation – but even so, that’s a pretty big bet on an unproven asset. Remember, Amazon after 20 plus years and billions in revenue is now just starting to show signs of profitability – a lot of which is attributable to its cloud computing business. For example, this past April, Amazon Web Services (AWS) was only 9 percent of Amazon’s total revenue – but it represented 56 percent of its total operating income (i.e. profits).

The point being, e-commerce retail services are not quite as profitable as they are often made out to be – generally operating on razor thin margins due to shipping, exchange and distribution network costs. Physical stores, even with their often pricey rents, usually offer far better conversion rates.

That said, it’s become pretty evident that e-commerce is a necessary channel for most forms of retail business as it provides another avenue to connect with consumers. A brands website is also increasingly becoming the threshold over which most consumers choose to step for that first foray into product exploration. Therein lies the bigger issue for me with this acquisition and why I’m not sure that it really means much yet. According to the Walmart press release:

“Walmart and Jet will maintain distinct brands, with Walmart.com focusing on delivering the company’s Everyday Low Price strategy, while Jet will continue to provide a unique and differentiated customer experience with curated assortment. Walmart and Jet will leverage innovative technology solutions from both companies to develop new offerings to help customers save time and money.”

So while the two entities will not continue to operate in a vacuum – they aren’t exactly being integrated either. While I have no doubt that each side will benefit from the others institutional knowledge and resources; the acquisition ultimately lacks a “game-changing” effect that could only happen through a full-scale integration of the two. We’ve long talked about omnichannel retailing and the need to provide seamless experience for the consumer across multiple platforms. That’s why I say today, the transaction doesn’t mean much of anything to the retail landscape in the grand sense. Walmart will likely improve its ecommerce platforms and maybe even close the gap with Amazon, but to truly take on the e-commerce giant I believe a more cohesive strategy must be met.

Does the WalMart Acquisition of Jet.com Even Matter?

Connect with Jesse Tron.  Better known to me as “JesseSocks.” Just ask him!

 

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