By agreeing to pay $3.3 billion in cash and stock for the online marketplace, Walmart, which is not known for throwing its money around, tacitly admitted that its e-commerce operations are in need of an overhaul. Jet promises to provide it. Launched in July 2015, the website, working with some 2,400 partners in the retail and CPG arenas, has succeeded in appealing to urban and Millennial consumers by providing savings on products that are purchased and shipped together, thus reducing supply chain costs. The site, which offers 12 million SKUs, is expected to generate $1 billion in sales in its first year, and it is currently attracting 400,000 new customers every month.
Marc Lore, the entrepreneurial wizard who founded Jet along with Mike Hanrahan and Nate Faust, said his vision for the company was to create a new shopping experience by leveraging innovative technology solutions. The early success of the enterprise — along with Lore’s previous track record, including the development of e-commerce sites Diapers.com, Soap.com and Wag.com, which were sold to Amazon in 2010 for $545 million — bodes well for Walmart.
Doug McMillon, the discounter’s president and chief executive officer, indicated that the addition of Jet’s management team (Lore will be responsible for Walmart.com as well as Jet.com) and technology platform will accelerate the company’s drive to deliver a seamless shopping experience for its customers. Walmart definitely has some catching up to do in cyberspace. Despite heavy investment in e-commerce over the past 15 years, the retailer’s online business, while substantial, is less than a seventh the size of Amazon’s.
McMillon characterized the purchase of Jet as “another jolt of entrepreneurial spirit being injected into Walmart.” That assertion may ultimately prove accurate, but it will have to be borne out over time. The acquisition does, however, demonstrate a new attitude at Walmart about how to stay relevant in a retailing environment recast by technology.
Since it was founded in 1962, the company has flourished by adhering to Sam Walton’s vision of selling a broad assortment of merchandise at everyday-low prices in stores that are simple and — the daunting scale of Supercenters aside — easy to shop. The retailer developed an unmatched logistics and distribution system to support the strategy, but with the emergence of e-commerce some of the advantages it conferred started to erode. Walmart’s response to the challenge over the years was halting and uneven, with rhetoric about its online operations usually outstripping results.
Now the company has taken a bold step, one designed to speed up the evolution of its technological capabilities and give it an e-commerce arm that is worthy of its standing in the brick-and-mortar world. McMillon should be credited for acting on the insight that, in order to uphold the principles that have always guided Walmart and continue to achieve the end of delivering real value to customers, the company has to be willing to adapt to new realities.