Wal-Mart announced Monday that it would acquire e-commerce startup Jet.com for about $3.3 billion, making it the largest purchase ever of an e-commerce company. The deal, which is expected to close by the end of the year, could be a win-win-win for Wal-Mart, Jet and consumers.
“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,” Wal-Mart President and CEO Doug McMillon said in a news release. “Our customers will win.”
Jet’s founder Marc Lore will head Walmart.com as well as continue to run Jet. Lore knows a thing or two about selling a startup to a retail giant. In 2010, he sold Quidsi — parent company to Diapers.com, Soap.com and Wag.com — to Amazon for $545 million and stayed on with the company for several years. With lessons learned from his experience, Lore created Jet.com about a year ago; it has since blossomed into an Amazon competitor.
It’s no surprise Jet is being snatched up by one of Amazon’s biggest rivals, especially considering that this isn’t Wal-Mart’s first attempt to encroach on Amazon’s territory. Wal-Mart implemented ShippingPass, a subscription service that, like Amazon Prime, offers free two-day shipping on eligible items. But Amazon is still the reigning champ of e-commerce, showing no signs of relinquishing its crown. How this new agreement will affect the market isn’t clear yet, but we’re taking a look at what it could mean for Wal-Mart, Jet and you as a consumer.
What Wal-Mart gains
Wal-Mart’s move will turn Jet from a competitor into an asset. Jet quickly established itself as a player in the online shopping arena, with 168% growth in sales between August 2015 and July 2016, according to a recent analysis from Slice Intelligence, a digital market research firm. Wal-Mart — which, by comparison, saw 30% growth in online sales during that time, according to the same analysis — hopes Jet’s gains will be contagious.
Wal-Mart will get access to Jet’s staff, which could lead to new perspectives and strategies for its business model. Wal-Mart could capitalize on Jet’s success with bulk buying, for instance. According to Slice Intelligence, there are plenty of other reasons Jet appeals to the chain:
- New demographics: Wal-Mart aims to broaden its customer base through the acquisition. Jet’s customers tend to be younger, more educated and more affluent than Wal-Mart’s.
- New products: Jet brings new inventory and third-party seller relationships to the table. This will help Wal-Mart expand its reach into categories such as health and beauty products and groceries and gourmet food, where it has underperformed compared with Jet.
- New technology: Jet uses software that helps consumers and the company save money by making shipping more efficient. Wal-Mart is already known for its low prices but may incorporate this technology to improve its website.
» MORE: Amazon Prime vs. Jet.com
What Jet.com gains
Despite its strong growth, Jet has been unprofitable. Wal-Mart, on the other hand, has a healthy gross profit margin of 24.6%, according to its 2016 annual report. Now, as a part of one of the world’s largest retailers, Jet may have the support and resources it has lacked, which could help it become more fruitful.
As Lore said in the release, Jet will obtain “Wal-Mart’s retail expertise, purchasing scale, sourcing capabilities, distribution footprint and digital assets.”
What consumers may see
So how will this agreement affect you? Because the deal hasn’t officially closed, you probably won’t notice any immediate changes. Wal-Mart and Jet will still operate as separate websites, so you can continue to shop as usual.
But down the line, it’s possible that Jet’s money-saving features will roll out on Wal-Mart’s website. If that’s the case, you might find a larger selection of products, lower prices and a better overall user experience. This marriage will give Wal-Mart more bandwidth, which could make it a more powerful Amazon Prime and Prime Day competitor.