This morning, Walmart announced the acquisition of Jet.com for $3.3 Billion in cash plus $300 million in stock, much to the chagrin of many big-box retailers fighting to maintain share of real estate and share of wallet in the digital world.
Background
Jet.com launched last year with a unique pricing model designed to undercut competitors and has grown to approximately 350,000 customers per month. Jet’s public strategy of launching a large marketing blitz makes it no surprise that the company has been unprofitable to date.
On the other end of the spectrum, Walmart has struggled to maintain a competitive presence in e-commerce amid so much disruption in the space and has maintained a focus on its brick-and-mortar presence even during the advent of digital. As a result, e-commerce sales have slowed over the past few quarters. Many see this as Walmart’s reach into the entrepreneurial space as much as the e-commerce space.
Implications for Merkle clients
- Many of Merkle’s retail clients compete with the likes of Jet.com, Walmart, and Amazon and can anticipate the following continued competitive shift:
- Walmart plans to take aim at Amazon.com with Jet.com’s pricing algorithm and competitive share.
- Walmart will continue to dominate retail (in-store) presence. Paired with a competitive e-commerce pricing strategy, this combination gives them leverage on both sides of the retail landscape for in-store showroomers or price-shoppers.
- Walmart, Amazon, and Jet will continue to undercut competitors in media such as Google Shopping (Product Listing Ads) and other dynamic pricing ads.
- Finally, just like so many other retailers seeking the lion’s share of spenders, Jet.com has popularity among Millennials – a major demographic targeted by many of Merkle’s top retailers.
Critics have noted that Jet.com has so far pulled a loss and has had to largely rely on other fulfillment houses, indicating that Walmart is making a mistake in buying out a company that may put itself out of business in the next few years.
It remains to be seen how well Walmart will integrate and leverage Jet’s pricing algorithm, and many look at this as Walmart taking aim at Amazon. Yet the results of this acquisition will most likely inhibit price competition for some of the smaller big-box retailers as they become consistently edged out in pricing wars.
