Was the $3.3 billion Walmart spent on Jet.com worth it?

Discussion
Photo: Jet.com
May 21, 2020
George Anderson

When Walmart acquired Jet.com for $3 billion-plus in 2016, the move raised some eyebrows. Why would the world’s largest retailer invest that amount of cash in an Amazon.com-like startup when it looked like it could take years to reach profitability, if ever? Now that Walmart has announced that it is closing Jet.com after less than four years, the question is whether the deal was worth it.

In a CNBC interview, Walmart CEO Doug McMillon said with 20/20 hindsight, he would do the Jet deal “all over again” adding “If you look at the trajectory of our business, it changed when we made that acquisition.”

Back in 2016, Mr. McMillon pointed to five reasons for the Jet deal:

  1. Offering Walmart more ways to serve existing customers online while attracting new ones;
  2. Helping Walmart to build on its e-commerce foundation and accelerate digital sales growth;
  3. Delivering a complementary customer base of “urban Millennials” that do not typically shop at Walmart;
  4. Adding new executive talent, specifically in the person of Marc Lore, the online startup’s founder;
  5. Bringing it expertise in saving consumers time and money to Walmart.

Walmart, Mr. McMillon told CNBC, benefited greatly from the Jet acquisition. In fact, looking at the goals laid out in 2016, it appears as though Jet largely fulfilled the promise that Mr. McMillon saw in it when the deal was struck.

“Not only did we pick up Marc Lore … we picked up fulfillment centers — a lot of expertise that ended up paying off,” he said.

Walmart, he added, also gained access to younger, more affluent consumers since the acquisition and has also been able to create relationships with brands that previously had no interest in working with the retail giant.

DISCUSSION QUESTIONS: Do you think the Jet.com acquisition has paid off for Walmart? Where do you see strengths in Walmart’s digital business performance and where do you see opportunities for further gain?

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Braintrust
"Jet.com brought talent and digital knowhow to Bentonville, putting pressure on the Walmart team to grow and stretch out of decades of the status quo."
"It’s not surprising that the consumer facing brand “Walmart” is much more powerful than “Jet,” so the brand retires..."
"Walmart had to play catch-up in the digital landscape so as not to lose additional marketshare to Amazon. So they “paid to play.” And it worked..."

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22 Comments on "Was the $3.3 billion Walmart spent on Jet.com worth it?"


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Art Suriano
Guest

The question of whether or not the purchase of Jet.com was worth it on the surface may appear to be a no, but when reading the comments made by Doug McMillon, it may have made sense. It’s not uncommon for a business executive to defend a corporate move no matter what the truth might be, but McMillon made some compelling points that could show that the short-lived investment paid off in the long run. Walmart continues to do well, even during this challenging pandemic period, so I think they know what is best for them. In time, we may learn that others may disagree with the Jet.com purchase, and the money may have been better spent on other investments, but until then, I accept Mr. McMillon’s comments as being a valid argument.

Cynthia Holcomb
BrainTrust

Yes, Jet.com paid off for Walmart. Jet.com brought talent and digital knowhow to Bentonville, putting pressure on the Walmart team to grow and stretch out of decades of the status quo. That being said, when it comes to product and product presentation, Walmart is still Walmart in terms of look and feel and mindset. Due to Jet.com, Walmart.com is viable.

Suresh Chaganti
BrainTrust

This is one acquisition that the buyer can afford to write off if needed. So it is almost a case of no harm, no foul. The ROI is all soft and qualitative.

If looked at from a financial perspective, it didn’t pay off. But then Walmart is smart to recognize the qualitative value (or are telling themselves it was worth it) and cut the losses when it didn’t make sense quantitatively.

Neil Saunders
BrainTrust

In purely financial terms, the deal wasn’t worth the money Walmart spent on it. Jet.com has not played out and delivered what Walmart wanted it to deliver. However I am not completely critical of the move as Walmart was right to experiment and to try something new; this is exactly what Amazon does and why Amazon is so successful. I also believe Jet.com brought in talent to Walmart and helped Walmart evolve its wider e-commerce proposition. These things are intangible compared to the actual financials, but they are nonetheless important.

Paula Rosenblum
BrainTrust

I do think the Jet.com acquisition has paid off for Walmart, along with the other investments the company made in creating a robust e-commerce operation. At the end of the day, it appears Walmart was the most successful retailer out there during the lockdown.

I don’t think Mr. McMillon gives himself enough credit, however. It has been his policies, much less arrogant and worker-appreciative than his predecessors that have made Walmart less of a pariah for higher-end customers. I’m not sure I’m ready to handle a Walmart store, but during the pandemic I found the company to have far more reliable inventory than its peers, including the vaunted Amazon. I was a tough sell, personally, but I’m now sold.

Opportunity for further gain is in cleaning up the stores. But I wouldn’t want to see Walmart lose its core customer, either.

Brandon Rael
BrainTrust

Strategic acquisitions such as what Walmart did back in 2016 with Jet.com are just what it takes for companies to drive their internal digital transformation plans. Acquiring the e-commerce marketplace is a classic case where industry experts may have questioned it at the time, however, Doug McMillon and the Walmart leadership team had the long game strategy in mind.

As the Walmart team took their aggressive steps towards their digital transformation plans, acquiring Jet.com enabled the company to target new tools, talent, capabilities, and brand differentiators, as well as enhancing the value proposition and cross channel customer experience. In addition, the acquisition continues to pay dividends as the acquisition enabled Walmart to enter new categories and channels to improve growth. This was achieved by broadening the product and service offerings and acquiring new Millennial/Gen Z customers.

The transformation shifts have also been put to the test during the COVID-19 pandemic, and Walmart has been able to meet the increased digital commerce demands.

Jeff Weidauer
BrainTrust

Walmart’s investment in Jet.com was a smart one for all the reasons given. As an added bonus, Walmart took Jet.com off the market as a competitor. I think a lot of Walmart’s success in the current crisis has been due to lessons learned from Jet.com.

Lee Peterson
BrainTrust

Acquisitions aren’t only to add revenue to the coffers — the knowledge gained and the talent that took Walmart to a new level (as witnessed last quarter) were all well worth the relative pocket change involved in the transaction. They had to take a leap to get close to Amazon’s level, and they did. So, to me: victory. Good call. P.S.: another one to add to the pile of good calls this last decade.

Stephen Rector
BrainTrust

Walmart had to play catch-up in the digital landscape so as not to lose additional marketshare to Amazon. So they “paid to play.” And it worked – the knowledge gained from the Jet.com team has created a Walmart.com shopping experience that is in my opinion better than Amazon’s for a variety of reasons. They are gaining new customers daily because of this.

Gene Detroyer
BrainTrust

It worked even beyond Walmart’s original expectations.

Cathy Hotka
BrainTrust

I’ll play nay-sayer today. The whole idea of Jet.com didn’t make sense in the first place (shipping a gallon of bleach?) and the sky-high price that Walmart paid was jarring. I’m sure there were learnings from this experience, but $3.3 billion is a bridge too far.

Jeff Sward
BrainTrust

There’s “fail fast” and then there’s “fail fast and LEARN.” Jet.com may have been an expensive tutorial, but it appears to be paying dividends.

Gene Detroyer
BrainTrust

FAIL? Yes. Prior to Jet.com, Walmart.com was an absolute failure with no successful future on the horizon. They bought Jet.com and they learned — quickly.

Jeff Sward
BrainTrust

To be clear, I don’t think Walmart was a failure prior to Jet.com. Far from it. But yes, they needed a dramatic move to catapult them to a new level of performance in ecomm. And with Jet.com they are saying “mission accomplished.” The context for my “fail fast” comment is in testing and exploring new markets and opportunities. Would Walmart have been better off exploring 3 different $1 billion ventures rather than the one $3 billion venture? That can only be food for thought at this point.

Gene Detroyer
BrainTrust

I don’t disagree with your point. But would 3 different ventures give them the infrastructure that Jet.com gave them immediately? I do know they accomplished exactly what they set out to accomplish and their ROI on the investment was beyond their expectation.

Steve Montgomery
BrainTrust

Did it pay off financially? The answer is determined by how you keep score. Did it as a standalone business makes financial sense? The answer is no. If on the other hand you change the way the returns are measured to include how it helped transform Walmart’s business and prepare for the future the answer is definitely yes. That was true even before the pandemic.

Gene Detroyer
BrainTrust

At $3 billion plus, the acquisition was well worth it. Before Walmart purchased Jet.com, Walmart.com was a retail site that just plain didn’t compete with Amazon and was losing money at a rapid rate. Walmart needed the expertise of Jet and particularly the expertise of Marc Lore. Without Jet, Walmart.com would continue to be a losing proposition.

Last year Walmart.com revenues were just under $20 billion. This year they are on track to far surpass that. The ROI for the Jet.com purchase is out of site. Walmart.com (and its multitude of sister sites around the world) will deliver more that $3 billion in profit year-in and year-out going forward.

The reality is, Walmart isn’t “closing” Jet.com, it is merely running Jet.com under the Walmart.com banner. And, I can assure everyone, the strategy in the acquisition was never to rum Jet.com under a separate banner. What has played out is exactly what was planned, with the success of Walmart.com beating Walmart’s expectations.

Lisa Goller
BrainTrust
Walmart needed to acquire Jet.com to jumpstart its e-commerce strategy, as rival Amazon is as much a tech leader as a retail leader. How Jet.com helped Walmart: Modernization: Jet.com and Marc Lore gave Walmart much-needed in-house tech capabilities, infrastructure and data insights. Investments in innovation: Acquiring Jet.com in 2016 sparked Walmart’s 2017 tech shopping spree, which included a strong BOPIS strategy, automated pickup towers, mobile pay, in-home delivery and triple the online assortment that year alone. Entrepreneurial mindset: Jet.com’s risk-embracing mindset reinvigorated Walmart’s traditional culture. Experimentation: Jet.com helped Walmart test new approaches, including subsequent acquisitions, to attempt to attract the large, lucrative market of urban Millennials. Going forward, Walmart needs to focus on: E-commerce enhancements: Improve home delivery reach, robust data insights and a seamless online experience. (For instance, why does Walmart.ca have different pricing and silos between its online grocery and non-grocery stores?) Last-mile muscle: Industry talk of acquiring last-mile brands like Skipcart or Grubhub makes sense to get Walmart to our doorsteps and fortify its leadership with food. Owning low-cost leadership: The global… Read more »
Jason Goldberg
BrainTrust
It was very clearly a good acquisition for Walmart. At the time the deal closed (Sept 2016) Walmart’s market cap was $225 billion, today it’s $355 billion (a 36 percent increase). Walmart’s market cap had some volatility but was basically the same in 2000 as it was in 2016, so the acceleration from 2016 to 2020 is very significant. Jet/e-commerce isn’t the only reason for the growth, but it is a major contributor. It’s also inaccurate to think of the acquisition as only benefiting Jet.com. At the time of the acquisition, Walmart e-commerce was about $12 billion year, had 1 million SKUs, and was growing at 10 percent (less than the industry average). Today they are well north of $20 billion per year, have 40 million SKUs, and have grown at 40 percent for the past two years. Clearly Walmart.com and especially the Walmart.com Marketplace are way better as a result of the assets and talent they acquired from Jet. It’s not surprising that the consumer facing brand “Walmart” is much more powerful than “Jet,”… Read more »
Harley Feldman
BrainTrust

The Jet.com acquisition was worth it based on Doug McMillon’s comments. An investment does not have to return just dollars to be beneficial. In the case of Jet.com, Walmart received management talent and skills that would have either taken years or would have never happened at Walmart. Marc Lore has been a great strategist and has helped Walmart grow and be better positioned due to his skills and advice. What has that been worth to Walmart? A lot.

Walmart’s digital business has blossomed during the COVID-19 time. Those lessons will be used in future e-commerce offerings and service. Walmart will move farther down the road to a seamless experience for its customers. They will be able to shop in the environment they choose and pickup or have delivered items in the manner they wish.

Craig Sundstrom
Guest

Walmart acquired a bunch of ideas and (at least for a while) the services of people who probably wouldn’t otherwise have worked for them. So in the parlance of PR speak, it was “a learning experience.” Could they have accomplished the same thing differently, or for less money? Perhaps, but the advantage of having lot$ of buck$ is that you get to hire a tutor if you don’t do well in class.

Brian Numainville
BrainTrust

Yes, this was a good move for Walmart. Whether or not it was a financial success really isn’t the issue. Walmart has come on strong in e-commerce and this was part of what pushed them forward in a way that happened more quickly than going at it organically.

wpDiscuz
Braintrust
"Jet.com brought talent and digital knowhow to Bentonville, putting pressure on the Walmart team to grow and stretch out of decades of the status quo."
"It’s not surprising that the consumer facing brand “Walmart” is much more powerful than “Jet,” so the brand retires..."
"Walmart had to play catch-up in the digital landscape so as not to lose additional marketshare to Amazon. So they “paid to play.” And it worked..."

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