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Wal-Mart to buy US online retailer Jet.com for US$3.3b

Monday, August 8, 2016 - 23:54

[NEW YORK] Wal-Mart Stores announced Monday that it will acquire e-commerce company Jet.com for US$3.3 billion as it beefs up its online retail operations in response to Amazon and other competitors.

Wal-Mart is paying US$3 billion in cash for the online retailer. Shareholders of Jet.com, which was launched in July 2015, will also receive US$300 million in Wal-Mart shares over time, Wal-Mart said.

The move comes as Wal-Mart and other conventional retailers struggle to keep up with Amazon and a slew of smaller online businesses that have sprouted in recent years as consumers become more comfortable with shopping in cyberspace.

Conventional retailers have responded by shutting some stores and by meshing the two formats by, for example, having consumers order on line but pick up groceries at a store.

In recent months, Wal-Mart has announced ventures with ride-sharing companies Lyft and Uber to allow speedy delivery of goods to compete with Amazon's Prime service. It has also introduced Walmart Pay, a mobile application designed to compete with Apple Pay.

"We're looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that's what our customers want," said Wal-Mart chief executive Doug McMillon.

Credit Suisse said the Jet.com acquisition by Wal-Mart could spark acquisitions by other conventional retailers as specialty stores in everything from auto parts to home furnishings look for new ways to reach consumers.

The Jet.com deal "could open up the doors for other brick and mortar retailers to follow suit," Credit Suisse said.

"Walmart's move is one that many retailers should be considering as they need the people, the technology and infrastructure to compete, but have shied away for fear of further margin erosion," it added.

Wal-Mart praised Jet.com's leaders, including chief executive Marc Lore, whose previous company owned the e-commerce site Diapers.com, which was sold to Amazon in 2010.

Jet.com has 3.6 million members and has been adding 400,000 new subscribers a month and averaging 25,000 daily processed orders. The company works with about 2,400 retailers and brands.

"The acquisition of Jet will infuse Walmart with fresh ideas and expertise, as well as an attractive brand with proven appeal, especially with Millennials, the first generation of true digital natives," Wal-Mart said.

The deal could also let Wal-Mart access a wealthier clientele. The average Wal-Mart customer has annual income of about US$58,000, compared with US$68,000 for Amazon, said market research firm Kantar.

Wal-Mart plans to keep Jet.com as a distinct brand.

Ramping up investment in e-commerce has been a drag on Wal-Mart earnings, along with added costs due to paying US workers more.

Wal-Mart said in October it would raise investment in e-commerce from US$700 million in 2015 to US$900 million in 2016 and a projected US$1.1 billion in 2017.

Wal-Mart is still awaiting a fuller payback on the investment. In May, the company reported a seven per cent rise in e-commerce sales in the first quarter, a rate of increase that McMillon said was too slow.

Wal-Mart reported US$478.6 billion in sales last year, more than four times that of Amazon. However, Amazon's market capitalization of US$361.6 billion is nearly 60 per cent higher than Wal-Mart's.

Wal-Mart shares fell 0.6 per cent to US$73.29 in mid-morning trade.

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