Wal-Mart Stores Inc. will pay US$3.3 billion for internet retailer Jet.com and its innovative pricing software in a bid to better challenge Amazon.com Inc.
The deal, disclosed on Monday, follows a five-year e-commerce acquisition spree in which Wal-Mart, the world’s biggest traditional retailer, has already bought 15 startups, seeking the talent and technology to make it a dominant player online and narrow the massive gap with market leader Amazon, Reuters reports.
Wal-Mart’s online division has underperformed against Amazon, posting its slowest growth in a year in the first quarter as it struggled to gain traction with consumers, especially millennials.
Jet.com was launched by internet entrepreneur Marc Lore in July 2015 and includes software that can offer a customer lower prices as they add items to their shopping cart.
Wal-Mart has said it would integrate that software into its main website while keeping Jet.com as a separate entity.
“One of the things we really like [about Jet] is that the customer is even more in-charge of the price that they pay,” chief executive Doug McMillon said on a media call.
McMillon said Wal-Mart will take time in getting the technology and design components from Jet and that they will grow both brands separately in the short-term.
“Over time, piece-by-piece, we will end up running a business that is simpler and not completely independent.”
McMillon said Lore would run its new US e-commerce business. Lore had co-founded Quidsi, the owner of sites like Diapers.com and Soap.com, which was sold to Amazon.
“Marc’s e-commerce experience and success are obviously attractive,” McMillon said.
Wal-Mart’s current head of global e-commerce Neil Ashe will leave the company at the end of the fiscal year.
The decision to run Jet as an independent website is a good step because it can stay focused on growth, but the price Wal-Mart paid is high, UBS retail analyst Michael Lasser said in a note to clients.
Wal-Mart said it would pay around US$3 billion in cash and US$300 million in shares for Jet, with some of that paid over time.
Given Jet’s revenue of about US$500 million, the cash purchase price represents six times Jet’s revenue, according to analysts.
Moody’s retail analyst Charlie O’Shea said the acquisition gives Wal-Mart a leg-up on competitors in the race to be the No. 2 online retailer, citing the size of Jet.com’s online offerings and number of customers. Wal-Mart said Jet has added nearly 400,000 new shoppers monthly.
“The impact on Amazon will be fairly benign. However, this acquisition, in tandem with its joint-venture in China with JD.com, demonstrates that Walmart is attacking online retail with significant zeal,” he said.
In June, Wal-Mart said it sold its Chinese online grocery store in return for a stake in JD.com Inc., China’s No. 2 e-commerce firm.
Wal-Mart’s first-quarter online sales grew 7 percent, a weaker rate than any of the four quarters just before that. In 2015, Wal-Mart’s online sales rose 12.3 percent to US$13.7 billion, compared with a 16 percent jump to YS$92.4 billion for Amazon.com.
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