Walmart E-Commerce Flies On, Using Jet.com's Parts

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Includes: WMT
by: Lipper Alpha Insight
Summary

Walmart is wrapping up most of Jet.com, the online upstart it bought in 2016.

But the $311 billion retailer's e-commerce effort flies on, using parts and the pilot from its acquisition.

With or without the Jet.com name, the strategy has room to run.

By Breakingviews

Walmart (NYSE:WMT) is wrapping up most of Jet.com, the online upstart it bought in 2016. But the $311 billion retailer's e-commerce effort flies on, using parts and the pilot from its acquisition. While Jet.com never took off at scale, it helped revitalize the U.S. behemoth's online sales. And focusing on its core brand underlines Walmart's key advantage over Amazon.com (NASDAQ:AMZN) in its home market - its numerous physical stores.

Walmart was struggling with online sales before it bought Jet.com. The company rang up less than $14 billion, or about 3% of revenue, online in the year ending in January 2016. Worse, annual growth in e-commerce sales had declined to an unimpressive 7% in the quarter before the deal was signed. By contrast in this year's first quarter alone, the company had $7.5 billion in sales that were either partially or entirely online, an increase of more than 50% from the same period last year.

Meanwhile sales under the Jet.com brand have been fading. It had less than $700 million of sales in the recently ended year, according to estimates from Kantar, less than analysts expected in its first year under Walmart's ownership.

That makes Wednesday's news that Walmart will focus on e-commerce under its own name unsurprising. Yet, even if Jet.com hasn't captured consumers' affections, the $3.3 billion purchase was worthwhile. In addition to technology and customers, Walmart also got Marc Lore as part of the deal. His stints at startups and Amazon meant he knew how online retail worked. Lore has run Walmart's U.S. e-commerce operations since.

Under Lore, Walmart has focused on blending the virtual and physical, for example by encouraging shoppers to pick up items ordered online in stores. Bricks-and-mortar outlets can also serve as mini-warehouses. Done right, that gives Walmart an edge in one of the costliest fronts in the battle with Amazon: getting orders delivered quickly to customers. After all, there are about 10 times as many Walmart stores as Amazon's Whole Foods Market locations in the United States. With or without the Jet.com name, the strategy has room to run.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.