IMAGE COURTESY OF CONSUMERIST
On August 8, Wal-Mart announced that it would acquire Jet.com for $3 billion in cash and $300 million in Wal-Mart shares. For years, Wal-Mart has been trying to at least slow down the runaway train that is Amazon. Could this be their chance?
According to E-Commerce Times, “The announcement of the deal comes about three months after Wal-Mart CEO Doug McMillon told investors in a Q1 conference call that at 7 percent, the company's global e-commerce sales growth was too slow to satisfy internal goals.”
So, now that the deal is closed, let’s take a look at why Wal-Mart purchased Jet, along with the implications on the retail industry as a whole.
It's the Analytics, Man
Despite launching a little more than a year ago, Jet quickly became a major player in the e-commerce space. And while they offered plenty of appealing perks to customers, including a low-cost membership fee, the ability to buy “normal sized” variants of item instead of the bulk size most retail clubs offer, and free shipping on orders over $35, it was largely it’s analytics platform that made the competitive difference.
According to E-Commerce Times, “Jet uses…technology that tailors discounts to individual users, based on what they buy, while they are in the process of shopping. During the shopping process, Jet passes on savings to customers when they buy certain items that can be fulfilled without adding much weight to the order, thus reducing the company's overall shipping costs.”
So, in essence, Jet’s ability to personalize to the needs to the individual consumer was a key part in Jet moving from obscurity to a more than $3 billion acquisition.
And this retail analytics-driven business is precisely what interested Wal-Mart.
"The combination of Wal-Mart’s retail expertise, purchasing scale, sourcing capabilities, distribution footprint, and digital assets -- together with the team, technology and business we have built here at Jet -- will allow us to deliver more value to customers," Said Jet CEO Marc Lore.
Wal-Mart Better Equipped
"While Wal-Mart already does have an online presence, Jet.com will enable it to compete with Amazon more closely than ever before," said Natalie Kotlyar, a partner at BDO USA's consumer practice.
And that prediction makes sense. Not only should Wal-Mart benefit from Jet’s retail analytics platform—perceivably bringing more personalized recommendations to consumers—they’ve are also in process of introducing a competing grocery shipping service, and a loyalty program similar to Amazon Prime called ShippingPass, which offers unlimited two-day delivery on orders, with free online or in-store returns and no minimum purchase. After the 30-day trial period ends, members pay $49 per year.
The Future of Retail
First and foremost, Wal-Mart’s acquisition of Jet should be the clearest endorsement of predictive analytics usage in retail in quite some time. That alone should be enough to send ripples throughout the retail industry. But could we see even more of an impact? Does this mean even bigger changes for Wal-Mart?
- Could Wal-Mart revitalize it’s in-store shopping experience to create something akin to Amazon’s brick-and-mortar book stores?
- Or could they take the approach of Target’s Goldfish Project and completely overhaul their product assortments?
- Will shoppers start using Wal-Mart as a sort of retail search engine, in the same way many use Amazon now?
- Could we see more big-box stores moving away from bulk merchandise? Or at least offer a smaller alternative?
- Will we see more Prime Day themed events?
These are all interesting questions. But for now, I’ll leave the last words to Larry Chiagouris, professor of marketing at the Lubin School of Business at Pace University in New York, who said the key driver behind Wal-Mart’s acquisition of Jet was “offering the personalized attention consumers have come to expect inside a retail store."
Right on, Larry. Right on.