Wal-Mart is a retail giant with more brick-and-mortar locations in the U.S. than any other brand. The company boasts “everyday low prices” and appeals to consumers looking to save money on groceries and household items. However, Wal-Mart’s online sales are not as high as the company desires. In August 2016, Wal-Mart announced that it will acquire Jet.com for $3 billion as a strategic move to boost online sales. Check out what Wal-Mart stands to gain from this acquisition.
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Situation: Wal-Mart Plans to Adopts New Online Strategy
Online sales make up only a small portion of Wal-Mart’s overall revenue. USA Today reports that Wal-Mart had a total revenue of $482 billion in 2015, but only $13.6 billion came from online sales. Amazon made more than $100 billion in online sales in that same time frame. Amazon.com is a powerhouse in e-commerce, and Wal-Mart’s acquisition of Jet.com is an attempt to take some customers from Amazon.
Dethroning Amazon might be impossible, but Wal-Mart can compete for the number two slot in online sales. Acquiring Jet puts Wal-Mart one step closer to this goal. Wal-Mart wants to create a seamless shopping experience that incentivizes customers and thinks Jet can help the company maintain its signature motto of “everyday low prices.”
Approach: Draw from Jet’s E-Commerce Expertise
Jet sells a range of products on its website. You can find everything from furniture and household goods to electronics and groceries on the site. Customers at Jet.com receive a bigger discount based on the size of their order, and Wal-Mart plans to adopt Jet’s bulk ordering strategy to improve its current online ordering platform. Jet will remain a separate brand because it appeals to more affluent shoppers than Wal-Mart’s typical customers.
Wal-Mart and Amazon have very different strategies. Amazon compares options from several retailers to offer low-priced options, while Wal-Mart strives to offer lowest price option itself. Jet’s dynamic pricing algorithm is what appealed most to Wal-Mart. While Amazon finds the cheapest retailers and offers free shipping with Prime memberships, Wal-Mart offers low prices and incentives for buying more.
Impact and Advantage
Jet has only been in business for a little more than a year. The company has proven successful in this short time frame, building a value of $3 billion. However, it’s not entirely clear whether using Jet’s bulk pricing strategy will help Wal-Mart increase its online sales. The company hopes that online customers will check Walmart.com first before moving to other sites, such as Amazon.com.
As Doug McMillon, president and CEO of Wal-Mart Stores, Inc., said, “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. We believe the acquisition of Jet accelerates our progress across these priorities.”
For Wal-Mart, the real advantage comes from the experience of Jet’s CEO, Marc Lore, and his partners Mike Hanrahan and Nate Faust. These innovative thinkers will help Wal-Mart try fresh ideas and appeal to a broader range of customers. Wal-Mart has already mastered brick-and-mortar retail, and it can certainly step up its game in online retail.[/show_to]
