Wal-Mart Stores Inc. is in talks to buy online discount retailer Jet.com Inc, reports Wall Street Journal.
A deal could give Wal-Mart’s ecommerce efforts a much-needed jolt as the world’s largest retailer seeks to grow beyond its brick-and-mortar storefronts with speedy home delivery from a network of massive suburban warehouses.
Although Wal-Mart has not announced how much it would pay for the startup, it is speculated that Jet could be valued at $3 billion. This would make it Wal-Mart’s biggest acquisition since buying South African retailer, Massmart Holdings for $2.3 billion in 2o1o.
This is a sign that Wal-Mart is willing to spend big to compete with Amazon and save itself from “traditional retailer death” plaguing legacy businesses.
However, industry analysts are questioning the slightly odd decision.
“I’m struggling with the math of why you would pay this much money for this business model at this particular time,” says Bryan Gidenberg, an analyst at Kantar Retail.
Jet is barely a year old and was set on going up against Amazon itself. A part of its early growth strategy relied on taking orders for products it didn’t sell and placing orders on behalf of its customers on other sites, often selling the items below what it paid while absorbing steep shipping costs. Jet has since abandoned the practice.
Wal-Mart has scrambled to keep pace with Amazon, which overtook Wal-Mart by market capitalization a year ago and now sports a market value that is 50% larger.
Wal-Mart’s ecommerce sales reached nearly $14 billion, or 3% of its $482 billion in annual revenue last year. Amazon’s revenue was $107 billion last year, including its Web-services business.
For Jet, a takeover by Wal-Mart would demonstrate the challenges of attempting to go it alone in the hypercompetitive ecommerce market. Jet has yet to prove that its unique pricing and supply chain model is sustainable.A version of this appeared in The Wall Street Journal on August 3. Read the full version here.