Wal-Mart, the world’s retailing behemoth, sold $480 billion worth of merchandise in the last fiscal year and earned nearly $15 billion in profits. Amazon, the formidable internet purveyor, reported $79 billion in merchandise sales and generates negligible profits. So one might be excused for expressing some confusion over the disparity in performance between the two companies’ stocks.
Christopher A. HopkinsWal-Mart stock has been stuck in neutral. The current price is no higher than four years ago, around $74 per share. Amazon, on the other hand, has more than tripled over the same time period. A constituent of the infamous “FANG” stocks (Facebook, Amazon, Netflix and Google), the online retailer has clearly benefited from the inevitable shift toward internet shopping and away from traditional bricks-and-mortar merchandising. The writing, as they say, is on the wall for Wal-Mart.
Well not so fast. The big box that Sam Walton built has fired a salvo across the bow of Amazon with the announcement last week that it is buying ecommerce upstart Jet.com for $3.3 billion. The move is an effort to bootstrap Wal-Mart’s online and mobile marketing presence, particularly with millennial consumers. And while Jet.com is tiny compared with Amazon ($1 billion in sales), the move, if executed well, could eventually challenge Amazon’s hegemony in internet sales.
Wal-Mart is seeking to infuse its somewhat staid and traditional ecommerce offering with some of the innovative aspects pioneered by Jet. A press release announcing the acquisition noted that the transaction represented a “jolt of entrepreneurial spirit being injected into Wal-Mart.” The reason for such optimism is embodied in the main asset in the deal: Jet CEO Marc Lore, who will join Wal-Mart as its new global head of electronic commerce businesses.
Lore knows the e-ropes: he previously founded another internet shopping site that included names like Diapers.com and Soap.com. After selling out to Amazon for a half billion dollars, Lore went on to start Jet.com, employing a unique and innovative dynamic pricing algorithm that adjusts prices in response to volume purchased. Jet also offered free shipping on orders over $35. Wal-Martis betting that this kind of innovation can be transplanted into the rest of the company’s ecommerce efforts. For the present time, Jet will remain a separate brand and operation, but look for increasing integration over time. If it works, Amazon could start feeling the pinch within a couple of years.