Jet.com, which has been battling to make the sale to consumers who reflexively head to Amazon’s Web site or app when looking for the best price and speedy delivery, is said to be in discussions with Wal-Mart, which has been struggling to catch up with Amazon’s e-commerce superiority for years, about a transaction valued as high as $3 billion. Representatives for both companies have refused to comment to reporters from multiple media outlets.
The New Jersey-based start-up by Diapers.com founder Marc Lore would give the world’s biggest retailer “a much-needed jolt as [it] seeks to grow beyond its brick-and-mortar storefronts with speedy home delivery from a network of massive suburban warehouses,” write Greg Bensinger and Sarah Nassauer in breaking the story in the Wall Street Journal yesterday.
But, at least one analyst argues, that’s not exactly a discount price they’d be paying.
“Wal-Mart could certainly use some energy” around its online efforts, Kantar Retail’s Bryan Gildenberg tells them. “I’m struggling with the math of why you would pay this much money for this [business] model at this particular time.”
But Recode’s Jason Del Ray argues “it would be a marriage of necessity for both sides, and one that probably makes too much sense not to happen.” The notion that Wal-Mart’s e-commerce could catch up with Amazon on its own has become “laughable” as Amazon has enhanced its lead over the past five years, he posits.
“Though Wal-Mart is the second-largest U.S. retailer in terms of online sales, its growth has recently stalled," reports CNBC’s Krystina Gustafson in a story that carries the headline: “One Chart That Shows Why Wal-Mart May Want To Buy A Year-Old Start-Up For $3 Billion.”
The Cowen & Co. data illustrates how Amazon’s overall sales growth has leapfrogged Wal-Mart’s starting in 2Q15. And for 1Q16, “Wal-Mart's digital revenues rose 7%. That compared with a 17% jump in the prior-year period. Its results likewise fell well short of Amazon's first-quarter sales growth, of 32%,” Gustafson writes.
In Jet, Wal-Mart would be acquiring the startup’s sophisticated pricing technology, which provides discounts to shoppers based on factors such as order size and proximity to partner warehouses,” writes Recode’s Del Ray. Not to mention that it “would also be acquiring a leadership team led by Lore that is widely viewed as having some of the best e-commerce operations minds in the business.”
“While plenty of competitors — including physical retailers and online start-ups — have tried to take on Amazon with strategies like focusing only on specific niches of the market or having flash sales, none have succeeded,” Michael J. de la Merced and Mike Isaac write for the New York Times.
Jet, on the other hand, emboldened by a hefty $600 million in initial equity capital from a variety of investors and an additional half-billion down the road, has been brazen enough to take on Amazon directly — even if it means losing money on every order that goes out for the nonce.
Its model originally “required a yearly $50 yearly subscription," Hadley Malcolm remind us in USA Today, but it “dropped the fee three months after launching, just before its free-trial phase was about to end.”
It claimed at the time that “the reason for the change in game plan was not concern that consumers wouldn't pay for a membership, but rather the unexpectedly high adoption rate — ‘more than 50%’ — for Smart Cart,” the technology that lowers the price every time an item is added, USA Today’s Marco della Cava reported.
“Unlike Amazon, which has invested in a network of highly efficient warehouses, the vast majority of Jet’s inventory is sold by retailers who themselves ship the goods directly to customers, what Jet calls a ‘hybrid marketplace model,’” explains Quartz’ Alison Griswold. “Of the 12 million different products Jet said it offered as of this month, only 75,000 are sold out of Jet’s three US warehouses. Jet says it takes a commission of 8% to 16% from merchants on most sales.”
“Jet’s model of encouraging bulk buying would complement Wal-Mart in areas where the retailer has lagged, according to Neil Saunders, a retail analyst with Conlumino,” the NYT’s de la Merced and Isaac tell us. “A decade ago, consumers might have been more inclined to stop at Wal-Mart for household items like toilet paper and laundry detergent in ‘fairly reasonable quantities’ and pick up other items while they were there, Mr. Saunders said.”
Ask your bulked-up UPS driver how they’re getting them now.