Wal-Mart (WMT, Financial) announced the acquisition of internet retailer and e-commerce site Jet.com in a $3 billion deal, with the view of improving and strengthening its online business. The deal has been closed and is only waiting for the regulatory approval. The move is expected to give Wal-Mart the opportunity to integrate and coordinate the resources and talent of Jet.com with its online business segment. This would further help Wal-Mart to compete with its online adversary Amazon (AMZN, Financial).
There is a reason behind the acquisition of Jet.com. Doug McMillon, CEO of Wal-Mart, said that Jet possesses the ability of lowering prices while customers increase their purchase items. This would help the world’s largest retailer to tap more customers, primarily millennial shoppers. McMillan said a lot of people have asked him, "Why Jet.com?” He said that both Wal-Mart and Jet collectively offer savings to customers and the step would help strengthen the company’s e-commerce business. Here is a closer look at the deal.
Scaling the online business
The acquisition will give numerous benefits to Wal-Mart. Wal-Mart will gain access to Jet.com’s pricing software. The company will be able to connect with richer customers who may not shop on Wal-Mart's online portal.
In the past six months, Wal-Mart has worked on its online platform to make it the second largest online retailer and has added a wide range of products to its websites. The company’s assortment has increased from 7 million to 15 million items. This is not all. Wal-Mart is continuously adding a million more items to its cart every month.
Marc Lore, Jet’s founder, will take over as the president and chief executive of Wal-Mart’s U.S. e-commerce business. He will be closely working with McMillon, who plans to invest time with this core team to scale the online business given the shifting trend toward online shopping. McMillan said, “Together, both Jet.com and Walmart.com will be able to leverage each other’s assets to grow the ways we serve customers.’’
As part of the deal, Lore will get as much as 3.55 million Wal-Mart shares, which would be paid to him over the period of the transaction. Such huge consideration paid by Wal-Mart shows how eager and determined the company is to make it big in the e-commerce space. The company aims to bolster its sluggish sales growth by driving its online business and fighting Amazon from poaching its customers.
Last word
Wal-Mart has been putting in efforts for a long time to make its mark in the online business. This is evident from the billions it has invested into building an e-commerce infrastructure. However, results have not been up to the expectation of the big box retailer. It is important for Wal-Mart to integrate the activities of Jet.com with its own so that the company is able to enjoy synergies of combination.
Apart from acquiring Jet, Wal-Mart has bought as many as 15 start-up firms in the recent past in order to boost its online business operations. Amazon has been growing more popular among Americans and eating into the share of big-box retailers. As such, Wal-Mart is doing all that is necessary to bring resources together and combat Amazon. It will be interesting to see how Wal-Mart manages to combine Jet’s resources and scale its e-commerce business.
Disclosure: I do not hold any position in the stock/s discussed in this article.
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