Wal-Mart Stores Inc. has entered a deal with Jet.com to buy the web retailer for $3.3 billion. This move will see the ecommerce retailer garner much-needed outside help.
Wal-Mart To Purchase Jet.com in a $3.3bn Deal
Wal-Mart’s buy out deal with Jet.com is the largest in US history in terms of an e-commerce startup purchase. The deal could be indicative of Wal-Mart Chief Doug McMillon’s acknowledgement of the rapid trend toward online shopping dominated by the likes of Amazon.com.
Marc Lore, founder of Jet, will become the CEO of e-commerce at Wal-Mart and will oversee operations on the online platforms—Jet.com and Walmart.com, according to Mr. McMillon. Meanwhile Neil Ashe, a top executive at Wal-Mart will be leaving the company.
In a statement, Wal-Mart indicated that the purchase would be done in form of $3billion in cash and $300 million in Wal-Mart shares, an amount that will be paid over time. The deal is expected to be closed this year.
Change in approach
The purchase marks a significant transition for Wal-Mart in its approach to online shopping. Walmart.com was launched over a decade ago with the company spending millions on improving its online platform.
So far, the retail giant has opened seven large scale centers dedicated to distribution and order fulfillment. The company has also hired hundreds of employees for its ecommerce operation in San Bruno California.
However, online operations have not always been a cornerstone for Wal-Mart, which owns thousands of large stores across the world.
Ecommerce sales for the retail giant reached an estimated $14 billion last year, just 3% of the company’s $482 billion yearly revenues. Meanwhile, last year Amazon sales were $107 billion, including its web-service operations.
Simeon Gutman, a Morgan Stanley analyst said, “A merger between Wal-Mart and Jet.com could essentially narrow down the ecommerce war to a two race horse.”
He added though that the two companies run on very different business models. “Jet.com does not address Wal-Mart’s key issue which includes combining its stores, website and distribution centers.”