Jet.com
From Invertopedia, the encyclopedia of how things fail
Jet.com was an online store that launched in July 2015 promising lower prices than Amazon[2]. Walmart agreed to buy it in August 2016 for about $3 billion in cash plus $300 million in Walmart shares[3], the deal usually reported as $3.3 billion[2][6]. By 2019 its sales were shrinking[8][6], and on May 19, 2020, Walmart said it would discontinue the site[4][5].
Contents
The bet
Jet's first pitch was price. For a $50 annual fee it offered large discounts set by a formula that took basket size into account[2], and it rewarded shoppers in real time for buying items that could ship together[3]. Lore had sold his last company, Quidsi, the parent of Diapers.com, to Amazon for $545 million in 2010[1], and Jet set out to beat Amazon at its own game.
Walmart's bet was that Jet would bring it younger, urban shoppers and a startup's speed. Doug McMillon called the deal "a jolt of entrepreneurial spirit being injected into Walmart"[6]. At the time Jet claimed $1 billion in run-rate gross merchandise value and 400,000 new shoppers a month[3], but it had projected staying in the red until 2020[1].
What happened
| 2013 | Marc Lore, Mike Hanrahan and Nate Faust found Jet and raise hundreds of millions of dollars before launch.[1] |
|---|---|
| Jul 2015 | Jet launches with a $50 annual membership. It drops the fee three months later.[2] |
| Aug 8, 2016 | Walmart agrees to buy Jet for about $3 billion in cash plus $300 million in Walmart shares, both partly paid over time.[3] |
| Late 2016 | Lore takes over Walmart's US e-commerce business on a five-year contract.[6][1] |
| 2018 | Walmart says Jet will focus on large urban areas like New York, San Francisco and Chicago.[6] |
| Jun 2019 | Walmart folds Jet's teams into its own online business. Jet had forecast $1 billion in revenue in 2016; Kantar estimates its 2019 sales at $689 million.[8] |
| Dec 2019 | Jet gets 1.4 million visits for the month, down 82.5% from a year earlier and almost 96% from its December 2016 peak.[6] |
| May 19, 2020 | "Due to continued strength of the Walmart.com brand, the company will discontinue Jet.com."[4] |
| May 20, 2020 | McMillon says he would "absolutely" do the deal again.[7] |
The kill shot
Jet's customers came for the discounts and the ad spend. When Walmart moved both to Walmart.com, there was little reason left to shop at Jet.
Walmart ran two online stores selling much the same things, and the bigger brand won the budget. In 2019 Lore said, "Across most of the country, we saw we could get a much higher return on our marketing investments with Walmart.com, so we've dialed up our marketing spend there"[6]. Vendors told Reuters that Walmart was buying less stock for Jet and telling them not to spend on a Jet strategy[8]. Kantar found that the share of US households shopping on Jet fell from 3% to 2%[8][6], and that its sales fell 45% in 2019[6].
The prize was the people. McMillon said the trajectory of Walmart's business "changed when we made that acquisition": "Not only did we pick up Marc Lore ... we picked up fulfillment centers — a lot of expertise that ended up paying off"[7]. Walmart's own statement said buying Jet was "critical to accelerating our omni strategy"[5].
Red flags ignored
- Growth bought with discounts. Jet's pricing formula and membership deals cut prices to win shoppers, and the membership fee lasted three months.[2]
- Losses planned for years. Jet projected it would stay unprofitable until 2020, the year Walmart shut it.[1][4]
- Two stores, one owner. An analyst said running two e-commerce platforms "proved distracting and dilutive for Walmart."[6]
- Traffic followed the ad money. Visits collapsed after marketing moved to Walmart.com.[6]
The cost
About $3 billion in cash plus $300 million in Walmart stock[3]. By 2019, Jet's estimated annual sales of $689 million were below the $1 billion it had forecast three years earlier[8].
The bigger bill was Walmart's online push as a whole. McMillon had told investors Walmart would start reining in e-commerce losses of at least $1 billion a year[6], and a Wall Street Journal report put the losses at about $2 billion[5].
The inversion
If you're buying customers with discounts, find out what happens when the discounts stop. And if you're buying a company for its team, price it as a hire, not as a store.
What survived
Marc Lore and the Jet team. Lore ran Walmart's US e-commerce business while it unwound the company he founded[6], and most Jet roles had already moved to Walmart.com when the shutdown was announced[6]. In the quarter Jet was discontinued, Walmart's US e-commerce sales grew 74%[4][5].
References
- ^ “Confirmed: Walmart buys Jet.com for $3B in cash to fight Amazon”. TechCrunch, August 8, 2016. Founding in 2013, funding upwards of $500 million, the July 2015 launch, losses projected until 2020, Lore's Quidsi sale to Amazon for $545 million, Lore to lead Walmart online, the stock component.
- ^ “Wal-Mart to Buy Jet.com for About $3.3 Billion”. Reuters via Entrepreneur, August 8, 2016. The $3.3 billion headline price, the July 2015 launch, the pricing formula and $50 annual fee, dropped after three months.
- ^ “Walmart Agrees to Acquire Jet.com, One of the Fastest Growing e-Commerce Companies in the U.S.”. Walmart press release, August 8, 2016. Deal terms (about $3 billion cash plus $300 million in shares), run-rate GMV, new shoppers per month, the ship-together savings.
- ^ “Walmart Inc. earnings release for the quarter ended April 30, 2020 (Form 8-K exhibit)”. Walmart filing with the SEC, May 19, 2020. The sentence discontinuing Jet.com and the 74% US e-commerce growth.
- ^ “Walmart says it will discontinue Jet, which it acquired for $3B in 2016”. TechCrunch, May 19, 2020. The shutdown, Walmart's "omni strategy" statement, the WSJ's estimate of about $2 billion in e-commerce losses.
- ^ “Walmart pulls the plug on Jet.com”. Talk Business & Politics, May 19, 2020. The $3.3 billion price, Lore's role and five-year contract, the 2018 city focus, Lore's marketing quote, the SimilarWeb traffic figures, Kantar's 45% sales drop and household reach, $1 billion a year losses, McMillon's 2016 quote, the analyst quote, Jet roles moved to Walmart.com.
- ^ “Walmart CEO on buying Jet.com: We would 'do that all over again'”. CNBC, May 20, 2020. McMillon saying he would do the deal again, and what Walmart picked up: Lore, fulfillment centers, expertise.
- ^ “Walmart Overhauls Jet.com As Online Business Fails To Deliver Results”. Reuters via ESM Magazine, June 13, 2019. Jet's teams folded into Walmart, the $1 billion 2016 forecast against Kantar's $689 million 2019 estimate, household share from 3% to 2%, vendors told to deprioritize Jet.