Chart of the Week: Why did Walmart spend $3 billion on Jet?

 In Consumer Insights

A few weeks ago, rumors started circulating that Walmart was in talks to acquire Jet.com, an ecommerce site founded in 2013 by Marc Lore. Last week, Walmart confirmed the sale, shelling out $3 billion in cash for the Hoboken, N.J.-based startup that, among other things, offers lower prices to customers who purchase larger quantities of items.

Walmart’s Sagging Numbers

Why is Walmart so eager to acquire a heavily-funded company that only truly came to market last year? The basic stats on Jet don’t look promising: compared to Walmart and Amazon, it’s barely a blip in terms of user numbers or reach – last month, Jet’s website saw barely 14 million visitors (among U.S. adults, ages 18+), compared to Amazon’s 190 million and Walmart’s 118 million online visitors. But a closer look at Walmart’s numbers shows that they need all the help they can get – their app and their website see just a fraction of the users that Amazon’s do – the different is especially stark when comparing their main retail websites. In fact, the average visitor to Walmart.com spends nearly the same amount of time onsite as a visitor to the much smaller (and less-established) Jet.com.

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A $3 Billion Bargain?

According to Mattermark, a look at Walmart’s earnings and growth numbers shows significant stagnation, with some financial metrics reporting just 1% growth. It’s clear that their internal efforts at ramping up ecommerce technology and offerings have stalled, even as they’ve been trying to position themselves as a viable ecommerce contender against Amazon. For a retail behemoth like Walmart, $3 billion is a relatively small investment to acquire the talent and resources to refresh their digital strategy – given their current numbers, even an incremental improvement could make a huge difference.

Meanwhile, Jet has always had Amazon in its sights – just a few months ago, they announced a move to take on Amazon in the fresh grocery delivery vertical (an area that Walmart is also attempting to enter), as well as rolling out interesting sales models, such as offering deeper discounts at the expense of free shipping on returns. What remains to be seen is if Jet can now combine this ambition with Walmart’s considerable resources and infrastructure to disrupt the ecommerce space.

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