Supporters say the acquisition should help Walmart improve its e-commerce business, which has been criticised in the past for falling so far behind Amazon.
(Walmart’s online sales were $13.7 billion in fiscal 2015, while Amazon’s sales in 2015 were $107 billion).
The deal is also expected to give Walmart access to Jet’s shoppers, who tend to be wealthier, younger, and more urban than Walmart’s core customers.
But some people, like former Sears Canada CEO Mark Cohen, think the acquisition was a waste of money.
“I think they just spent $3 billion on an idea that they should have been able to create for themselves,” Cohen, now the director of retail studies at Columbia Business School, said in an interview with Business Insider. “It looks and feels like a ‘hail Mary’ pass. I think it is a terrible mistake.”
Jet.com is not yet profitable, but it has grown exponentially — adding approximately 350,000 customers a month — since it launched last year.
The company, which sells household goods and groceries, offers lower prices than Amazon and free shipping on all orders over $35. By comparison, Amazon charges $99 annually for free two-day shipping as part of its Prime membership.
Jet has a unique business model — enabling customers to bundle items together or waive free return privileges to save more money — but in Cohen’s opinion, it doesn’t have “any viability or any likely profitability.”
“Anyone can offer prices lower than Amazon,” but no one has figured out how to do as profitably as Amazon, Cohen said.
In turn, Walmart could start attracting top tech talent away from Amazon, eBay, and other online retailers, according to UBS retail analyst Michael Lasser.
“Until now, Walmart probably faced some difficulty attracting the best & brightest engineers & [e-commerce] talent given its perception as a ‘traditional retailer,'” Lasser wrote in a recent note to clients. “We think the addition of a rapidly growing and innovative retailer should enable Walmart to attract human capital and knowledge that it might not have otherwise been able to attain.”
In announcing the news of the acquisition, Walmart CEO Doug McMillon said Jet would help Walmart’s website grow faster.
“Walmart.com will grow faster, the seamless shopping experience we’re pursuing will happen quicker, and we’ll enable the Jet brand to be even more successful in a shorter period of time,” he said in a statement. “It’s another jolt of entrepreneurial spirit being injected into Walmart.”
But no one can be sure how it will all play out for Walmart and Jet.
“Whether it’s the right strategy, or even the right company to acquire, remains to be seen,” said Sucharita Mulpuru-Kodali, e-commerce analyst at Forrester Research.
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