In Walmart’s Q1 earnings call this week, the retailer announced U.S. ecommerce sales were up 74% and it was discontinuing ecommerce platform Jet.com “due to continued strength of the Walmart.com brand.”
It marks a turning point in a nearly four-year saga as Walmart focuses on customer needs during a pandemic. But despite the shuttering, Walmart certainly wouldn’t be in the position it is today if it wasn’t for Jet.
When Walmart announced the 2016 acquisition, it said the brands would remain distinct as Jet “[provided] a unique and differentiated customer experience with curated assortment.”
Jet launched in 2015 as what financial news site Money.com described as “a mix of Costco and Amazon Prime,” which sought to distinguish itself from retailers like Amazon and Walmart by offering the lowest prices for consumer goods online.
It started with a $49.99 annual fee, but dropped the membership model three months later. Jet, however, retained an arguably never-before-seen pricing structure in which customers received per-item discounts when they waived the right to return a product, paid with debit cards and/or ordered products that could be shipped from the same warehouse.
A little over a year later, Walmart came calling.
And while Walmart certainly benefited from the deal, the Jet brand had something of an identity crisis. In September 2018, for example, Jet pivoted to urban consumers with a grocery delivery option and a partnership with Nike. Its sister text-to-shop service, Jetblack, debuted a few months earlier with a similar target, skewed toward wealthy city-dwelling moms. Jetblack was discontinued in February.
And now Jet.com, too, has come to the end of the road.
‘Like a rocket’
According to Kyle Rees, a director for research firm Gartner’s marketing practice, pulling the plug does not mean Walmart wasted $3 billion here.
“On the contrary, with the Jet acquisition, Walmart acquired hard-to-find talent and tech that have played a critical role in supporting the surge in ecommerce activity reported by the company,” Rees said. “This very much supports what we’ve seen in our research—that of a company methodically working towards a vision in which it sets a new bar for omnichannel excellence.”
Indeed, Brendan Witcher, vice president and principal analyst at research firm Forrester, said Walmart doesn’t regret buying Jet because it acquired the talent it needed to establish a formidable presence in ecommerce.
“Before Jet, Walmart struggled severely in getting ecommerce going and finding success with ecommerce,” Witcher said. “Post-Jet with [founder] Marc Lore, suddenly ecommerce took off like a rocket. It was the acquisition of talent that turned that around.”
In fact, Walmart itself said the acquisition was “critical to accelerating our omni strategy.”
Additionally, Allen Adamson, founder of marketing firm Metaforce and adjunct professor at New York University’s Stern School of Business, said acquisitions are sometimes used as catalysts to “get your own people to move faster” and the internal competition between Walmart and Jet staffers could have forced each team to work harder.
While conceding it was “a hefty price tag for that talent,” Witcher said, “I don’t think they could have done it any other way.”
And, he said, if nothing else, Walmart took a competitor out of the mix.
“There’s nothing wrong with doing that,” Witcher said. “The thing to remember is at the time prior to purchase, Jet.com’s mission was to go after the price-conscious consumer. What they were doing was not even going after Amazon, they were going after Walmart.”
Jet also helped Walmart in terms of strategy, like the acquisition of smaller online-only companies that followed, such as clothing retailers Bonobos, Modcloth and Eloquii.
“I think, again, that was part of that move to understanding what makes for a good ecommerce strategy,” Witcher said.
‘Set up for the pandemic as if they knew it was coming’
And that brings us to this May, when online sales for Walmart are up 74%. Retail analyst Bruce Winder pointed out this has more to do with consumer shopping preferences during Covid-19 than anything else, but analysts say it’s unclear if Walmart would have been otherwise prepared to serve this audience now.
According to Winder, the Jet acquisition “turbo-charged” Walmart ecommerce and helped the retailer better prepare for the new normal.
“They would have done a decent job anyway, but Jet made it happen faster,” he said. “Jet created a more innovative culture where they tested, failed and learned.”
Witcher, however, said it’s unlikely Walmart would be where it is today if it had allocated that $3 billion elsewhere because “historically they had shown no success for years and years and years with a different ecommerce strategy and this was all at once the shot in the arm they needed to really eradicate the poor performance of ecommerce for so long.”
At the end of the day, Adamson said what matters more than this “would they, wouldn’t they” question about whether Jet was worth it is that consumers are turning to Walmart for online shopping now.
“As a talent acquisition thing, it was probably too expensive. As a technology acquisition thing, it was probably too expensive,” Adamson said. “But as an accelerator toward a viable digital offering they are now combining with in-store pickup … certainly the end result is they are more successful than ever online and that’s mission critical for their success going forward.”
And if Walmart is going to compete with Amazon on efficiency now, it must cut unnecessary costs, Adamson said.
Coincidentally, Winder said sunsetting the Jet brand helps the retailer do just that.
“Especially with the economy under pressure, people will be really value-focused, so streamlining and cutting as many costs as possible [is important] to ensure when customers go online, the price for Charmin is equal to that on Amazon,” Adamson said. “Amazon’s success is now driven by their phenomenal scale and efficiency. Walmart has got to make sure besides fast delivery, they need to be within pennies of the price of those offerings.”
But Witcher said Walmart is already well-positioned to capitalize on consumer preferences during Covid-19.
He called Walmart “one of the companies by pure coincidence that was set up for the pandemic as if they knew it was coming.”
That’s because it was already offering in-store and curbside pickup services while other retailers are scrambling now to figure out buy online, pick up in store (BOPIS) by “duct-taping things together.”
Walmart, however, didn’t have to do that.
“Walmart has already been doing that for years. They’ve invested so much—it was their primary marketing message for the last two holiday seasons,” Witcher said. “When people look at Walmart and their success, this wasn’t their response to the pandemic, this was how they had already set up their business.”
As we come out of the pandemic, Witcher said other retailers will be tempted to make up some revenue and profits with marketing campaigns, but the smarter move would be to look at what Walmart has done to be successful, including investments in supply chain and pickup services, and to put the right technology and processes in place so it’s not duct-taped together anymore.
“I fear we come out of this and starting in October this comes back, which would be the worse thing for the retail industry ever,” he added. “[Allocating budget to marketing] is not going to save you if this pandemic comes back in October during Q4.”