In April 2014 I wrote, Walmart Can Crush Amazon. I focused on all of the competitive advantages Walmart has over Amazon. and if leveraged, implementing the right strategies, over time, (and given the time), they could beat Amazon at its own game. The one major disadvantage I cited as an impediment to getting there was Walmart’s plodding and questionable efforts in perfecting and growing their e-commerce business and integrating it into an omnichannel model. This week, Walmart leapfrogged that disadvantage and the many years of catching up to Amazon (and the risk of possibly never catching up) by agreeing to acquire Jet.com for $3.3 billion.
More recently I wrote, Jet.com, Reefer Madness, with a photo of its CEO and founder, Marc Lore, laughing his head off. I depicted him as though he might be smoking weed as he snookered investors (who could only have been on something even stronger), convincing them that Jet.com would crush Amazon by using his proprietary pricing wizardry and underpricing the iconic “under-pricer” of all times. My point at the time was that regardless of his secret sauce, and whatever unique software he developed, his model was not sustainable. Jet.com was reliant on enormous doses of funding that Lore was using to build infrastructure, which would not be offset by revenues soon enough to keep the funding hose flowing. At the time, investors had funneled about $500 million into Jet.com, and Lore was burning through cash like an out of control California wildfire — with no end in sight. My observation was that Lore’s braggadocio about crushing Amazon seemed to be replaced by the stark reality that Jet.com was likely crushing itself, as its optimistically winning and so-called unique strategies appeared to be going up in…well, smoke.
From Reefer Madness to a Win-Win
So whether or not Jet.com was teetering on the edge of collapse, at the very least they had to be well aware of the fact that funding was going to be harder to find going forward, and that pressure from investors would mount for top and bottom line performance.
Viewed from this perspective, Walmart could be considered a savior for Marc Lore and his investors. And if so, one might wonder if they are over paying. However, we all know Walmart is not running a charity. And in my opinion, as stated in that article I wrote in 2014, Doug McMillon and team still have a winning strategic vision for Walmart’s future and, therefore, this is a smart move.
Furthermore, assuming Walmart’s move has been carefully calculated, it would lend credibility to Marc Lore’s self-proclaimed, sophisticated and proprietary pricing software, designed to “crush” Amazon’s pricing advantage. If that’s true, Amazon has more than fear itself to fear, now that the Arkansas titan owns what is arguably the next big thing in pricing.
I would also hope that Walmart has done their triple due diligence on Marc Lore, his e-commerce knowledge, and leadership credentials. He will be replacing the current executive in charge of Walmart’s U.S. e-commerce business, now to include Jet.com as well.
Currently, Jet.com has a more affluent, younger millennial and urban customer base than Walmart. It’s been estimated by Forrester Research that Jet.com adds more than 400,000 new shoppers per month. In its first year, they reached $1 billion in gross merchandise value, or the total value of transactions on its platforms, and had 12 million items for sale. Walmart currently has about 10 million items and has said previously it wants to add tens of millions over the next few years. By comparison, Amazon has about 365 million items for sale. Walmart’s total online business is around $15 billion vs. Amazon’s $100-plus billion and growing 20 to 30 percent a year, as opposed to Walmart’s lumbering growth of 2 to 4 percent. Thus, with Jet.com Walmart gets more scale to strengthen its online presence, broaden its assortment and offer the lowest prices at the same time with Jet.com’s unique pricing software. They also get additional distribution centers and rich customer data.
Indeed, Business Insider cited that over the past year, 70 percent of Jet.com customers were first-time buyers, while only 30 percent were returning, loyal customers. With this deal, Walmart could implement its popular loyalty programs to drive Jet.com customer retention rates.
McMillon was quoted in Walmart’s release, “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. 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. Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Walmart.”
- Walmart’s size and deep pockets, (pushing to three-quarters of a trillion dollars vs. about a hundred billion for Amazon).
- Its global scale.
- Its ability to turn its 10,000 stores worldwide—4500 in the U.S. (accessible within 4.2 minutes for 90 percent of the population) – into the dual function of retail stores and distribution centers. Amazon currently has about 180 distribution centers in the U.S. and is just beginning to test physical stores. By comparison, Amazon’s distribution/fulfillment centers are within 20 miles of 31 percent of the population.
- Jet.com’s demonstrated ability to scale with speed, reaching $1 billion in run-rate Gross Merchandise Value (GMV) and offering 12 million SKUs in its first year.
- A growing customer base of urban and millennial customers with more than 400,000 new shoppers added monthly and an average of 25,000 daily processed orders.
- Best-in-class technology that rewards customers in real time with savings on items that are bought and shipped together, thereby reducing the supply chain and logistics costs often buried in the price of goods.
- A select group of more than 2,400 retailer and brand partners tailored to create an attractive and distinctive assortment for consumers.
The Last Word
Marc Lore had this to say in the Walmart release, “We started Jet with the vision of creating a new shopping experience. 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.”
Amen Amazon. That light you may see at the end of whatever tunnel you happen to be in is a train called Walmart/Jet.com. And it’s accelerating in speed to smack you head on with the force of what has always been the “behemoth of Bentonville,” which has decided they are going to continue to dominate the retail space in the 21st century.
Shake in your boots Jeff.