Wal-Mart’s interest in a hobbled unicorn underscores its struggle to grow online sales and defend its turf from Amazon.com.
The mega-retailer announced this week that it plans to acquire Jet.com, a fledgling online-shopping site with an ambitious — albeit unproven — plan to challenge Amazon in the $350 billion US e-commerce market. Founded in 2015 by CEO Marc Lore, who helped start Diapers.com (sold to Amazon in 2010 for $550 million), Jet.com has attracted plenty of buzz and venture capital: The startup has raised more than $500 million and carries a lofty valuation of more than $1 billion. Wal-Mart will pay $3 billion in cash plus $300 million in stock to acquire Jet.com in a deal expected to close by the end of the year, Progressive Grocer reports.
The notion of paying billions for an unproven, unprofitable, 13-month-old startup shows how serious Wal-Mart is about reining in Amazon and jump-starting its own stalled online sales growth. Indeed, e-commerce accounts for barely 3% (about $13.5 billion) of Wal-Mart’s total sales. By comparison, Amazon rang up about $80 billion in online sales last year, according to eMarketer. Despite announcing last fall that it will invest $2 billion over the next two years to build its e-commerce arm, Wal-Mart’s online sales growth has slowed for the last nine quarters, The Wall Street Journal reports.
Shopping itself to Wal-Mart is a sign that Jet.com may be experiencing turbulence. Indeed, the Web merchant changed course last fall when it abandoned initial plans to charge customers a $50 annual membership fee, which would have been the sole source of its profits, the Journal reports. Consequently, the company had to trim the discount on its prices from 15% to 5%, significantly narrowing its price advantage.
Meanwhile, as Wal-Mart, Jet.com, and others struggle to keep the online giant from pulling further away from them, high-flying Amazon has unveiled the first of a fleet of cargo jets — branded Prime Air — as it looks to expand its logistic prowess and e-commerce dominance.
Alexandra Biesada shops every day, whether she wants to or not, and pines for the days when it was strictly a recreational activity. She has covered the retail beat since 2001. Follow her on Twitter.
Image courtesy of Jet.com.