Walmart buys Jet for $3B

Walmart (NYSE:WMT) is buying Jet.com for roughly $3 billion, in a deal expected to jump-start the company's e-commerce business and help it better compete with Amazon.

Jet will bring new e-commerce technology and the ability to capture and leverage data differently. It's an opportunity to grow Walmart's millennial audience and acquire new talent.

"We're looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that's what our customers want," Doug McMillon, Walmart president and CEO, said in a statement. "We believe the acquisition of Jet accelerates our progress across these priorities. Walmart.com will grow faster, the seamless shopping experience we're pursuing will happen quicker, and we'll enable the Jet brand to be even more successful in a shorter period of time."

"It's another jolt of entrepreneurial spirit being injected into Walmart," he said.

That entrepreneur is Marc Lore, Jet's founder. Lore also founded Quidsi, the parent company of Diapers.com, Soap.com and Wag.com, which was sold to Amazon in 2010 for $545 million.

Walmart will pay approximately $3 billion in cash for Jet, a portion of which will be paid over time. Additionally, $300 million of Walmart shares will be paid over time as part of the transaction, according to the company.

Lore is expected to remain, taking a senior leadership role with Walmart while the company's top online executive, Neil Ashe, is expected to leave, reported The Wall Street Journal.

"We started Jet with the vision of creating a new shopping experience," Lore said. "Today, I couldn't be more excited that we will be joining with Walmart to help fuel the realization of that vision. The combination of Walmart's retail expertise, purchasing scale, sourcing capabilities, distribution footprint and digital assets – together with the team, technology and business we have built here at Jet – will allow us to deliver more value to customers."

In addition to Lore, a former Amazon executive, Jet will bring an algorithm that determines product prices based on availability from marketplace members and proximity to the customer.

The plan is for Walmart and Jet to remain distinct businesses, with Walmart continuing to focus on its low-price strategy and Jet on its "differentiated customer experience with curated assortment." But operating separate websites and banners is something that has proven difficult for other large retailers.

In July, Walgreens said it was closing down drugstore.com and beauty.com, acquisitions it made in 2011 and continued to operate as distinct entities. Walgreens paid nearly $900 million for the two retail businesses combined.

But Jet is expected help Walmart grow e-commerce, which took in nearly $14 billion in digital sales last year. Still, it's dwarfed by Amazon and its $107 billion in sales, growing Prime membership program, and near-daily additions or improvements to its delivery infrastructure and premium offerings.

Jet has been adding close to 400,000 new shoppers monthly and sold $1 billion in merchandise last year, but at just a year old the business has yet to be vetted.

Some are skeptical whether the acquisition will add much to Walmart's business. "While Jet's deeply discounted pricing model fits Walmart's low price strategy, we don't believe that this marriage offers anything truly differentiated or new to the market," said Dianne Inniss, customer experience and innovation strategist at ThoughtWorks Retail, in an emailed statement. "Compared to the Amazon.com powerhouse, this marriage still has a long way to go. Amazon has been moving away from price as a differentiator in favor of seamless convenience and deeper integration of its products and services into customers' lives. While Walmart will acquire some interesting pricing technology and the e-commerce capabilities that it has struggled to develop, this investment won't be a game changer in the battle against Amazon which still accounts for half of all e-commerce growth."

The Jet acquisition could positively impact sales in the near-term, particularly this holiday season, according to Chris Taylor, CEO of Square Root. "Walmart has already put into place plans to bolster their online site and moving into the holiday shopping season, this acquisition would have a huge impact on their seasonal sales both in-stores and online. This deal makes sense for Walmart in the long-run as they aim to compete with both bricks-and-clicks."

For more:
- see this Walmart announcement
- see this Wall Street Journal story (tiered subscription)

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