Walmart has agreed to pay $3.3 billion to buy Jet.com, a one-year-old e-commerce discount store. The move is retail giant’s latest attempt to compete with Amazon.com in online sales.
Walmart sold nearly $14 billion worth of goods online last year, which accounted for 3 percent of its $482 billion in annual revenue, according to The Wall Street Journal. Amazon’s revenue was $107 billion last year, including revenue from Amazon Web Services, the company’s cloud-computing business and its most profitable arm.
Jet.com was launched last year by Marc Lore, the founder of Diapers.com, which he sold to Amazon in 2010. The site offers lower prices to customers who buy in bulk, pay with debit instead of credit, and opt out of free returns. The startup, which is backed by $500 million from eminent venture capital investors, is not yet profitable. But its appeal to Walmart is expected to be data on its more urban, Millennial customer base (one which typically would not shop at Walmart), its pricing software, and its warehouses.
The purchase is the latest move in a decade-and-a-half-long effort by Walmart to build out its online operations. Since launching more than 15 years ago, Walmart.com has opened seven large distribution centers in the United States to ship orders and hired hundreds of staff to support the e-commerce business. But online growth has been slow, and Walmart has not been able to challenge Amazon, which continues to dominate online shopping. Amazon owns a 74 percent share of annual US e-commerce sales, accounting for $79.3 billion, reports WWD. Walmart comes in a distant second, with 3 percent of the US online sales market, or $13.5 billion in sales.
The world's largest retailer hopes that Jet's technology and network can help it inch closer to the top.
“As we believe ‘catching’ Amazon online is an unrealistic goal for any brick-and-mortar retailer, Walmart now has a definite leg-up on its competitors in the very important race to be number 2 online,” Charlie O’Shea, Moody’s lead retail analyst, wrote in a note on Monday, as The New York Times reported.
While privately held Jet.com does not report sales or revenue data, it has said that it expects to reach $20 billion in sales by 2020, WSJ reports. According to informal calculations by Recode, Jet will reach around $500 million in revenue over the next year, which makes Walmart’s acquisition price six times the company’s revenue. It's a move that's “mostly unheard of in e-commerce, especially for a company that is nowhere near profitable,” Jason Del Rey wrote Sunday in Recode.
Jet.com's value shot up quickly after it launched in 2015, and it reached $1.4 billion in its latest valuation by investors. Jet is part of a rare breed of startups called "unicorns" which cross the once unheard of billion-dollar value mark in their VC funding.
However, Despite Jet's valuation and the frenzy over e-commerce, the majority of sales in the US still happen offline.
“Physical stores are still formidable at selling merchandise, owning about 90 percent of market share,” reports the National Retail Federation. Still, their share of total sales has been declining for nearly two decades and will continue to do so as e-commerce captures a bigger and bigger share, the NRF predicts.
Walmart's share price was largely unchanged by mid-day Monday, and is up 20 percent up for the year so far, according to MarketWatch.