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In the wake of Wal-Mart Stores Inc.'s move to acquire Jet.com for $3 billion in cash, along with $300 million of the Bentonville, Ark.-based retailer's shares, the burning question on many observers' minds is how effectively the pricey deal will enhance the world's largest conventional retailer's position as a competitor of Seattle-based e-commerce leader Amazon.com?
The infusion of an experienced leadership team led by Jet.com's co-founder/CEO Marc Lore, and fellow co-founders Mike Hanrahan and Nate Faust is a foremost victory, notes Mike Elmgreen, CMO of New York-based Handshake, a B2B commerce platform provider. "The talent being acquired and [Jet.com's] deep knowledge of e-commerce will be invaluable assets as Walmart attempts to grow its online business to better compete with Amazon,” Elmgreen affirms.
Further, Lore and Co. have developed a customer experience far superior to Walmart.com’s, with the product-purchasing process being “exponentially better," says Tyler Carlson, VP of sales at Tampa, Fla.-based SiteZeus, a location intelligence platform that works with grocers and other businesses to ensure brick-and-mortar profitability.
“The amount of time it takes to purchase an item is shorter via Jet.com, and the importance of this principle is exemplified from Amazon’s one click to buy,” Carlson continues. “In my opinion, the one-click to buy has a large part to do with the $82.8 billion Amazon made in 2015 versus the $12.5 million Walmart made via e-commerce.”
What's In Store for Walmart?
Other benefits Jet brings to Walmart include its dynamic pricing platform and its short delivery times. If Walmart retains Jet’s pricing platform, which calculates discounts as shoppers purchase more, doing so will help drive volume and average order value, which are critical in the low-margin e-commerce grocery business. And with delivery times, Jet, as a late entrant to e-commerce, has recognized the value of quick delivery, positioning its warehouses and streamlining its logistics to maximize for rapid delivery. This is critical for the grocery business, where freshness is a huge concern, and for Walmart to get into grocery delivery, as it currently relies heavily on curbside pickup.
All of these gains could turn Walmart into a serious threat in the grocery sector, where Amazon isn’t as entrenched as it is in others, and fundamentally transform e-commerce’s customer base. Even Jet’s assortment of hard-to-find grocery items, which provide better margins and have stronger brand appeal, could help Walmart reach new customers, Elmgreen says.
“This move by Walmart could potentially shift the demographics [of] consumers who are currently getting groceries shipped,” Carlson points out. “Currently, individuals who get groceries delivered are higher-income and early adopters of technology, which doesn’t necessarily describe the Walmart demo. By advertising in store and great prices, Walmart could begin shifting this paradigm to lower-income demos, as well.”
To fight back in the grocery sector, Amazon may have to form a relationship with a brick-and-mortar company, Carlson explains, which is complicated, as finding the right partnership that can be mutually beneficial is a difficult task. The e-commerce giant also could get creative in its partnerships, such as working with schools and parent-teacher-student associations, where it can profit financially and loyalty-wise by having parents order their groceries.
Of course, Walmart will have to continue its uphill battle and seriously consider what it must do to grow its relevancy in modern grocery retail. First of all, it will have to focus strongly on integrating Jet’s technology and logistics network, Elmgreen says. It also will need to determine how to manage its relationship between the Walmart and Jet brands.
“Amazon has been successful leveraging and investing in the brands of the e-commerce business they’ve acquired – in particular, Diapers.com and the other Quidsi sites,” he says. “For this acquisition to be successful, Walmart will need to do the same.”