The retail world buzzed this week with news that Walmart was in talks to buy pure-play startup Jet.com for a reported $3 billion. The latest word, however, is that the Bentonville giant may simply invest in Jet.com rather than carry it to the checkout line.
“The discussions may ultimately result in a strategic investment rather than an acquisition,” according to a Bloomberg article that cited an unnamed source familiar with the matter. The article added that “Jet has been reaching out to Walmart and other retailers for capital to help take on Amazon, with the goal of raising about $640 million at a valuation of approximately $1.7 billion.”
Investing in, rather than acquiring, Jet.com outright could be a smarter move for Walmart; opinion is sharply divided on whether the freewheeling startup culture of Jet.com could be effectively integrated with the global retailing giant that is Walmart.
Still, a purchase would bring new, higher-income customers to Walmart, along with the algorithms that allow Jet.com to offer dynamic pricing (and that have helped it acquire 350,000 customers per month). According to NPD Group’s Checkout Tracking:
• Jet.com buyers are more likely than other online buyers to have incomes greater than $150,000 per year;
• Only one-fifth of Jet.com buyers have also purchased from Walmart.com in the most recent six-month period; and
• Compared to non-Jet.com buyers, Jet.com buyers spent more of their online dollars on baby products, pet supplies, home & kitchen, tools and home improvement, and health and beauty categories in the most recent six-month period.
The move to acquire Jet.com and its network of sellers “would not only provide Walmart with significant online data capacities and insights but also shift their entrenched competitive battle against Amazon from just pricing, to now battle with assortment and the endless shelf,” said Jenn Markey, VP of Marketing at pricing and product intelligence firm 360pi. “Along this same vein, we will likely continue to see more retailers moving away from direct head-to-head pricing wars into assortment and product differentiation strategies, especially during the quickly approaching holiday ‘must-win’ dates.”
Yet many retail industry experts see an investment (or no deal at all) as the wiser path, according to a recent RetailWire discussion: “What a terrible idea! Tying two bricks together won’t help either one float,” said Peter Fader, Professor of Marketing at the University of Pennsylvania’s Wharton School. “Jet.com has been a mess since day one. Walmart needs a partner with a proven record of success to find a way to make online work for them. They’d be overpaying at even half of the reported price.”
“I don’t really get it. I get it from Jet’s founders perspective…as in, making billions of dollars,” said Lee Peterson, EVP Brand, Strategy & Design at WD Partners. “But I’m not sure I get how this overlaps with Sam’s Club, which is essentially the same thing, I mean, why not just make the Sam’s Club web site better?”
“I don’t think shoppers on Amazon and those using any version of Walmart marketing are necessarily looking for the same things,” noted Tom Dougherty, President and CEO, Stealing Share. “Walmart promises the lowest price but you have no means to compare Walmart pricing with competitors on their online retail site. Amazon is ALL about scope and live price comparisons (including used items). To me, this move by Walmart is just proof positive that the Amazon model is growing in its successes.”
If the acquisition does take place, Walmart could potentially maximize its investment by maintaining Jet.com as a stand-alone business. “Walmart need not be in any rush to integrate Jet with Walmart.com,” said Ross Ely, CEO, ProLogic Retail Services. “With Walmart’s backing, Jet could succeed on its own first with the product mix that is right for its growing customer base. Over time, Walmart could find synergies and leverage its physical locations for shopper pick-ups.”
Buy? Invest? Walk away? Stay tuned.