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This summer, Walmart announced the acquisition of e-commerce startup Jet.com Inc. The price tag was $3bn in cash and $300m in Walmart stock.
The deal was a tacit admission by Walmart that it wasn't succeeding in the e-commerce world as quickly as it had hoped. Just as significant as the purchase of Jet.com was the appointment of the its co-founder and chief executive officer, Marc Lore, to head up the two companies' combined online operations. Neil Ashe, Walmart’s previous e-commerce head, is stepping down to make way for Lore.
Walmart has already spent billions on building out a network of e-commerce fulfillment centers, along with the requisite number of workers to staff them. And it’s rolling out ShippingPass, its answer to Amazon Prime, the subscription service that offers members free two-day delivery on a wide range of items.
So far, none of those actions has allowed Walmart to catch Amazon. Its online sales totaled $14bn last year, versus Amazon’s haul of $99bn. So the big-box retailing giant took what amounts to an unusual step – reaching outside the organization for help.
Customers of Jet.com don’t exactly overlap those of Walmart. The former focuses on a more affluent consumer “who may or may not go into a Walmart store,” says Nick Parnaby, chief marketing officer of product data network provider 1WorldSync. Jet.com also concentrates on encouraging bulk buys, versus Walmart’s online focus on individual items or smaller quantities.
Dan Wilkinson, chief commercial officer of 1WorldSync, adds that Walmart can draw on Jet.com’s capabilities in the area of price evaluation and selection. “There’s a desire to get as many items in an e-commerce website available to the consumer as possible,” he says.
More than anything, perhaps, Walmart needed to make a big splash. It must feel the press of time, with Amazon introducing a constant stream of innovations and marketing come-ons, from drones to Prime Day to the Alexa voice service and Echo audio device. Big as it is, Walmart must have realized that “trying to pull together a business that should do things organically takes far more time than to pull on board an engine that’s already executing,” says Parnaby.
Never mind that Jet.com is losing money; it’s the operation’s position at the cutting edge of e-commerce that counts. When it comes to the execution and fulfillment of bulk buying, where margins are historically low, “only about five companies in the world know how to run a supply chain like that,” says Wilkinson.
It’s unlikely that Jet.com can propel Walmart to the head of the pack any time soon, but it should help the retailer to achieve a stronger number-two position in e-commerce, while maintaining its dominance on the physical store side.
As with any major acquisition, Walmart will doubtless find itself faced with multiple integration challenges. It will have to combine procurement, merchandising and fulfillment operations, while searching out unique sources of supply that Amazon lacks. The goal will be to get as many items online as possible, Parnaby says, while standardizing and codifying how the retailer presents product content.
1WorldSync knows all too well the challenges involved in managing and presenting coherent and appealing content on the web. Hundreds of attributes are required to make items “discoverable and shoppable,” says Parnaby. Each item must possess a unique identification, tied to standards developed by the GS1 industry initiative. A typical Walmart store might contain between two and three million SKUs, versus nearly half a billion products for online sale by Amazon, and a billion when partnering merchants are included. “A company that can operate at that scale – and offer the most choice for the consumer – is going to succeed,” says Parnaby.
In addition to struggling to close the gap with Amazon, Walmart must be looking over its shoulder at rival brick-and-mortar retailers – Target, Sears, Home Depot and the like – that have similar ambitions to grow their share of e-commerce sales. To keep them off its heels, Walmart needs to match the online user environment offered by Amazon. It has yet to equal Amazon’s “frictionless commerce” experience, with its one-button purchasing feature. But Walmart’s prowess in fulfillment could go a long way toward attracting online buyers, Parnaby says.
The real trick in omnichannel commerce, he adds, is to make it all look easy to the consumer. If Walmart can engender loyalty among a customer base that is fast becoming indifferent as to where it discovers and purchases product, then that multibillion-dollar investment will have been worth it. If not, then a lot of Walmart’s e-commerce experts will be sending their resumes to Seattle.
