Wal-Mart’s deal for Jet.com to hinge on keeping its founder

Business Sunday 07/August/2016 13:42 PM
By: Times News Service
Wal-Mart’s deal for Jet.com to hinge on keeping its founder

Seattle: Wal-Mart Stores and e-commerce start-up Jet.com are trying to close a $3 billion acquisition as soon as Monday that will require Jet founder Marc Lore to head the retailer’s online division for several years, according to people familiar with the matter.
Lore would stay in that role for longer than the two-plus years he spent at Amazon.com, said one of the people, who asked not to be identified because the details aren’t public. The deal combines Jet’s proprietary technology, customer data and Lore’s e-commerce know-how with Wal-Mart’s extensive supplier relationships and its $480 billion revenue stream that can be used to fight Amazon, the online market leader.
Marc Lore is "one of the smartest people in e-commerce" who will bring a new kind of thinking to Wal-Mart to help it transition to digital commerce, said Sucharita Mulpuru, an analyst at Forrester Research Inc. "Wal-Mart still struggles with things like third party marketplaces which Marc and his team have successfully built," she said.
In teaming up with the world’s largest retailer, Lore would get deeper pockets and a longer runway than he’s ever had to take on Amazon. Lore, 45, duked it out with Amazon as founder and chief executive officer of Quidsi, best known for Diapers.com, before a protracted price war and tight credit market during the Great Recession forced him to sell to his competitor for $550 million in 2010. After working for Amazon as part of that deal, he emerged with Jet in 2015 and a plan to challenge Amazon yet again.
Jet has differentiated itself in e-commerce through “gain sharing,” enticing shoppers to add items to their baskets to reduce the shipping cost of each unit, or to pay with debit cards rather than credit to cut transaction fees and then share the benefits with customers through additional discounts, said Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University in Santa Clara, California.
The question is whether Wal-Mart’s vast inventory and supplier relationships can be used to sweeten the sales beyond what Hoboken, New Jersey-based Jet has done, such as savings of about 10 cents to double a toothpaste order, he said.
“The gains with Jet alone are not compelling right now,” Kalyanam said. “If Wal-Mart helps make the gains for shoppers more compelling, it may have some legs. It’s something unique and fits with Wal-Mart’s desire for shoppers to have a large basket at checkout.”
Amazon is changing the way people shop by offering inventory on its web store larger than any big-box retailer’s and delivery in as little as one hour in many cities. Its $99-a-year Amazon Prime membership provides free two-day shipping on millions of items, encouraging consumers to shop online and save themselves a trip to the store.
Savings model
Jet initially offered a similar membership model that cost $50 a year, looking to undercut Amazon, but quickly canceled the fee and offered free shipping on orders of at least $35. It sought to lower costs by matching shoppers with inventory closest to them, tapping retail partners including Wal-Mart. Jet sought to emphasize savings over Amazon’s emphasis on fast delivery.
Wal-Mart’s online sales were about $14 billion last year, 14 per cent of Amazon’s product and service revenues of $99 billion. Wal-Mart CEO Doug McMillon said last month that e-commerce is a priority and has taken too long to grow. Jet achieved a $1 billion gross merchandise run rate in just a little more than a year, a pace that appealed to Bentonville, Arkansas-based Wal-Mart.
Brick-and-mortar retailers are struggling to blunt Amazon’s momentum in e-commerce. The Seattle-based company first afflicted book chains, then electronics stores and now is adding clothing and household goods in a threat to department stores and big-box retailers.
Wal-Mart has spent billions trying to expand online to compete with Amazon, including hiring thousands of workers, opening two Silicon Valley offices and building massive e-commerce distribution centers. It has also begun an annual subscription service similar to Amazon Prime offering two-day shipping for half the price of Prime.
Jet has raised more than $500 million from investors including Chinese internet giant Alibaba Group Holding, Fidelity Investments, Accel Partners, New Enterprise Associates and Goldman Sachs Group Inc. The Wal-Mart offer came as Jet was looking to raise an additional $640 million from retailers looking to take on Amazon, according to one of the people familiar with the deal.