Walmart is reportedly preparing a Jet.com bid which could value the startup at as much as US$3 billion.
News was leaked by The Wall Street Journal which quoted unnamed sources familiar with the matter.
Jet.com was founded just a year ago by Marc Lore, who previously founded Quidsi and Diapers.com, which was sold to Amazon in 2010 for about $500 million. While the company has yet to turn a profit – it expects to at least break even by 2020, it has attracted more than $500 million from venture capitalists putting its value at about $1 billion. But The Wall Street Journal says a private sale could set the value at as much as $3 billion.
While still in its infancy, Jet.com is boasting 400,000 new ‘member’ customers every month with “good repeat rates” and turned over $1 billion in its first year’s trading. Its secret is an algorithm which prices goods based on availability and proximity to the shopper.
Neil Saunders, CEO of Conlumino says a Jet.com bid would be attractuve to Walmart because it wants to increase its exposure to lucrative and fast-growing online business.
“For Jet.com the logic is equally compelling: the company, while successful, struggles to compete with the buying power of larger rivals like Amazon, something that is detrimental in a market where price matters.”
Saunders says one of the ongoing trends in the American retail market is the fragmentation of the regular shopping trip. “This is something that is of concern to Walmart as it means customers who would once buy all of their staples and household essentials during regular trips to a store, increasingly buy in a more piecemeal way using a number of different stores and outlets to find the best bargain. eCommerce has played an important role in this, with the number of consumers buying household staples in bulk from online sites like Jet.com, Amazon and Boxed growing by 71 per cent over the past two years.
“While Walmart does have an eCommerce offer, it is somewhat jumbled and unfocused which makes it hard for the company to compete with the likes of Amazon in specific areas like household essentials. To an extent Jet.com remedies this and would give Walmart a much more focused and powerful offering and platform with which to compete against Amazon.”
Saunders says the integration of the two businesses could throw up a number of interesting challenges and opportunities.
“On the pricing side, there is no doubt that Walmart can sharpen Jet.com’s prices if it wishes to do so, and can do so profitably. This could help Jet.com extend its market share and make it much more of a threat to Amazon. However, Walmart will also need to take care in terms of differential pricing between online and stores: something that can confuse and alienate shoppers if not handled properly.
“There is also an opportunity for Walmart to think creatively about the delivery of products from Jet.com. The shipping-to-home option will remain, but Walmart could include collection from stores as part of the offer, perhaps with lower consumer shipping costs. This would help to drive customer traffic into existing stores and, to some extent, remedy the problem of sales migrating online to the detriment of physical shops.”
Saunders believes Jet.com’s efficiency can – with the right technology – be enhanced by using Walmart’s existing logistics and store network as a big warehouse and distribution system.
“We have always said that this is a major advantage for Walmart over a player like Amazon in that Walmart can distribute products far more cheaply and quickly, if it finds a way to fully integrate stores into its systems.
“There is no doubt that Walmart would pay a premium for Jet.com and the acquisition will not come cheaply. However, the deal would provide Walmart with immediate access to a rapidly growing part of the market at a time when its own eCommerce growth is disappointingly slow.
“Even so, on the digital front Walmart still has much work to do before it catches up to the ever growing behemoth that is Amazon,” concludes Saunders.
