Wal-Mart CEO Doug McMillon on what he saw in Jet.com
Wal-Mart's acquisition of Jet.com was in some ways a return to basics for the world's largest retailer.
"If Wal-Mart were starting today and we were building an e-commerce business some of the things that Jet designed into their approach would have been things we would have thought of and we would have wanted to do, and they've just done it from scratch," Wal-Mart CEO Doug McMillon told CNBC's "Squawk Box."
McMillon said when he met Jet founder Marc Lore in the spring, he quickly realized the two were like-minded in many ways. By the time the meeting was over, they had already begun sketching out on a white board how a combination of the two companies could work.
"I think we hit it off the first day," Lore told CNBC. "We just started talking about these amazing plans we had."
Yet this isn't the first time Lore has caught the attention of a retail giant. He's best known for co-founding Quidsi, the parent of Diapers.com. That company was sold to Amazon in 2010, which led to a fallout between Lore and Amazon CEO Jeff Bezos. Though Lore told CNBC he has no relationship with Bezos, he said it's different with McMillon and Wal-Mart.
"[This partnership is] built from day one on the back of trust, which is one of our core values here," he said. "I'm committed for the long haul here," he added. "This is a very different experience for me."
For the Jet founder, who had already raised $565 million to fund the money-losing company, a deal with Wal-Mart was more attractive than seeking out additional financing. That's because it allowed the company to quickly accelerate its growth and leverage Wal-Mart's financials and relationships, he said.
"E-commerce is a scale game and you want to get as much leverage as you can," he said. "It just gives us scale almost overnight."
Wal-Mart confirmed Monday that it would acquire Jet.com for $3.3 billion, in the largest-ever acquisition of an e-commerce company. A portion of the $3 billion in cash it's paying for Jet, along with $300 million in Wal-Mart shares, will be spent over time. Terms of those payments were not disclosed.
Wal-Mart will update its guidance when it reports its second-quarter earnings next week. It previously had said it would invest $1.1 billion in e-commerce this year. Wal-Mart had $7.6 billion in cash and cash equivalents as of April.
The acquisition is expected to close this year, subject to regulatory approval. Jet will continue to operate as a separate brand, though certain design elements from its site will be incorporated at Walmart.com over time, McMillon told reporters on Monday.
He added that he has been particularly impressed with Jet's algorithm, which allows consumers to snag a lower price by buying in bulk. Stocking up on large quantities of merchandise and low prices are hallmarks at Wal-Mart and Jet, McMillon said.
"Basket economics are more attractive to us than unit economics," McMillon told CNBC.
Acquiring Jet will also help Wal-Mart connect with more urban, millennial shoppers, and find more cost-efficient ways to ship its online orders. Though the fledgling company is not yet profitable, it has a run-rate of $1 billion in gross merchandise value after just one year of operation. McMillon said Wal-Mart's scale will help the company become profitable faster.
McMillon said he has a growth number in mind for Jet, but declined to share what that was. The first goal, of the partnership, he said, is high customer satisfaction scores.
Though McMillon said he is proud of what Wal-Mart accomplished on its own, a partnership with Jet was more an "and, not an or."
"We've got a great team in California that's been making progress on e-commerce. We've talked before about the fact we needed fulfillment centers, we've needed an operating system. ... But we have even higher expectations and higher standards about what we ultimately want to achieve."