Snatching up fledgling retailer Jet.com for $3.3 billion will alleviate multiple headaches that have stunted Wal-Mart's digital growth, the company said Monday.
Here's what the world's largest retailer said it gains in the deal:
- A chance to quickly build out its marketplace: Wal-Mart has been working to scale its online selection to better compete with Amazon, whose vast assortment dominates e-commerce. Jet.com scaled up to 12 million different products in just one year and reached a run-rate of $1 billion in gross merchandise value;
- Urban, millennial shoppers: The world's largest retailer grew to its size among a different generation of shoppers, primarily located outside of cities. But Jet has a "growing customer base" of urban and millennial customers and is adding more than 400,000 people each month;
- 'Best-in-class' technology: Wal-Mart built its reputation on having the lowest prices — something that's also core to Jet. Jet.com's algorithm helps shoppers get the best deal based on their digital shopping carts, which fits nicely with Wal-Mart "everyday low price" strategy. Jet has also figured out how to ship products in a cost-efficient manner;
- Attractive brands: Jet works with more than 2,400 retailers and partners, which will again help Wal-Mart broaden its selection.
"We're looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that's what our customers want," Wal-Mart CEO Doug McMillon said in announcing the deal.
Moody's lead retail analyst Charlie O'Shea said spending $3.3 billion on Jet makes sense for the cash-rich company.
"While it will likely be awhile before the return calculus can be assessed, Wal-Mart's financial strength and flexibility, in tandem with its excellent liquidity, give the company plenty of time from a credit perspective to integrate and leverage the legacy Jet business," O'Shea said.
However, O'Shea doesn't think the deal will place much strain on Amazon. Wal-Mart has been working to jump-start its slow-growing digital business as its online-only competitor gets stronger — and profitable. That's because of the strength of its subscription Prime service, which offers the additional benefits of original content and streaming.
"The more content [they create] the tougher it is to get people to leave once they're in," O'Shea said.
In the first quarter, Wal-Mart's global online sales increased just 7 percent, compared with a 17 percent lift in the prior-year quarter. Amazon grew its global e-commerce sales by 25 percent in that quarter.
Roughly 54 percent of Amazon shoppers are loyal Prime members, according to new data from Cowen & Co. That's up from 48 percent one year ago and marks an all-time high.
Wal-Mart plans to pay $3 billion in cash over time for Jet. An additional $300 million of its shares are to be paid over time as well. Terms of those payments were not disclosed.