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Thread: Walmart’s Desperate $3.3 Billion Acquisition of Jet.com Fails.

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    Default Walmart’s Desperate $3.3 Billion Acquisition of Jet.com Fails.

    Walmart’s Desperate $3.3 Billion Acquisition of Jet.com Fails. But it Now Discloses its US Online Sales, and They’re Big

    by Wolf Richter • Jun 13, 2019

    Ecommerce is an existential threat to Walmart, and it’s furiously trying to get on top of it, whatever the cost may be.

    Walmart, determined in an existential sense to become a factor in ecommerce, has been spending vast sums of money to get there, including blowing billions of dollars on acquisitions of ecommerce startups. But the mind-boggling $3.3 billion purchase in 2016 of Jet.com – an over-hyped online retailer that had started doing business in 2015 – wasn’t the ticket.

    Walmart conceded as much Wednesday afternoon. The admission was likely prodded by an investigative report by Reuters that appeared at the same time, detailing to what extent sales at Jet.com had shrunk, and how Walmart.com had been quietly absorbing Jet’s people and winding it down. $3.3 billion down the tubes.

    Walmart’s ecommerce business is already huge, and it’s now disclosing the actual dollar figures in its SEC filings. During the quarter ended April 30, its ecommerce sales in the US jumped by 34% year-over-year to $4.3 billion (10-Q filing).

    At this rate of growth, its ecommerce sales in the US will hit $5.8 billion in the same quarter next year. By comparison, Macy’s total sales, brick-and-mortar plus ecommerce, fell to $5.5 billion in the quarter despite its thriving online business. Walmart went from on online non-entity a few years ago to the third largest online retailer in the US in 2018, according to eMarketer estimates, behind only Amazon, eBay.

    Its online business is growing far faster than that of Amazon. But for Walmart, that massive $4.3 billion in US online sales last quarter was only a 5.3% sliver of its total US sales of $80 billion.

    By contrast, other brick-and-mortar retailers that now disclose actual online sales (not many do), Nordstrom and Neiman Marcus get over 30% of their total sales from ecommerce. Walmart has a long way to go. But Jet.com wasn’t it.

    Walmart is also investing heavily to build out its ecommerce infrastructure and technologies. By the end of last fiscal year (10-K filing), it had 33 “dedicated ecommerce fulfillment centers” around the country, up from 17 a year earlier. For the year, it listed $5.2 billion in capital expenditures for “eCommerce, technology, supply chain and other,” up 16% from the prior year, compared to only $2.1 billion for store remodels and $313 million for new stores.

    In the last fiscal year, Walmart’s ecommerce sales in the US reached $15.7 billion! But that was only 4% of its total US sales.

    Ecommerce is an existential threat for Walmart, unless it gets on top of it. But the $3.3 billion acquisition of the tiny Jet in 2016 was a waste.
    In its press release on Wednesday, Walmart tried to put the best face on it. It has been “repositioning the Jet business,” it says. “While this has made Jet smaller from a sales perspective, it has helped us create a smart portfolio approach where our businesses complement each other.”

    “We’re now merging the rest of our Jet teams, including Retail, Marketing, Technology, Analytics, Product and several others within Walmart,” it says. So, at least no layoffs.

    Jet’s president Simon Belsham will depart at the end of August, it says.

    “This natural progression of integrating an acquisition, allows us to fully leverage Walmart’s assets for Jet and leverage Jet’s talent for Walmart,” it says.

    Reuters has been digging into the changes at Jet for months, based on interviews of six sources among Jet suppliers, two consultants advising Walmart on its ecommerce business, and three Walmart employees. And it likely triggered Walmart’s press release.

    These are the most salient findings in the Reuters investigative report:
    Jet.com, which was expected to boost Walmart’s reach particularly with city dwellers and millennial shoppers, failed to become a driver for online grocery sales and growing market share in urban areas.

    Walmart has put more emphasis on shopper perks such as same-day delivery and curbside pickup of groceries ordered online, focusing on food and grocery sales using those delivery methods. Jet, as a platform to sell similar items, has fallen by the wayside.

    Multiple large and medium-sized consumer goods companies that do business with both Walmart and Jet have told Reuters they began noticing Walmart executives buying less of their merchandise to sell through Jet. The reductions in Walmart’s order sizes for its Jet unit, they said, started in March….

    In 2016, Jet forecast revenue of $1 billion and according to recent estimates from consulting firm Kantar, which was shared with some vendors, the company’s sales shrunk to $689 million in 2019.

    Several vendors, who told Reuters they were keen to introduce new packaging and pricing on Walmart.com and Walmart-owned websites like Jet this year, said the retailer told them to look for ways to push more sales on Walmart.com going forward and not spend resources on a new strategy for sales of their merchandise on Jet.

    Two retail consultants, who advise Walmart on e-commerce and online grocery, have confirmed to Reuters that Jet is failing to keep pace with Walmart’s internal sales goals.

    They said Walmart has de-prioritized the business and is focusing more on growing sales through its namesake website and offering a broader assortment of fashion and accessories through the multiple smaller brands like Moosejaw, Modcloth, Bonobos, Eloquii, Hayneedle and others it has acquired in the past few years to attract millennials.
    For years, Walmart had rested on the laurels of being America’s largest retailer, with its thousands of brick-and-mortar stores spread around the country. But as Amazon surged to being a real threat, Walmart got religion.

    It first pushed states to remove the “Amazon subsidy” – the fact that Amazon sold merchandise across the US without collecting sales taxes. In 2012, California became one of the first states to compel Amazon to collect sales taxes. Other states followed. By early 2017, Amazon was collecting sales taxes in all 45 states that have state-wide sales taxes and in Washington DC.

    Yet, even as the “Amazon subsidy” disappeared, Amazon’s sales continued to surge, as did the online sales at brick-and-mortar retailers, while Walmart’s brick-and-mortar sales stalled. And so it desperately started throwing its billions around in order to catch up and remain relevant in the changing US retail environment. Some of these efforts were successful, but others, like the immensely hyped acquisition of Jet, were a costly failure.

    Private-equity owned Neiman Marcus disclosed two things: Awful operating results and a deal with its beaten-up creditors who, under threat of getting clobbered in bankruptcy court, agreed to not sue over a blatant act of “collateral stripping” – and what the crazy-hot IPO market has to do with it.

    https://wolfstreet.com/2019/06/13/wa...nd-theyre-big/
    ”The trouble with socialism is that you eventually run out of other people's money.” - Margaret Thatcher

  2. #2
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    Sounds like the Jet.com founders followed the Greater Fool business model.

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    Quote Originally Posted by bw View Post
    Sounds like the Jet.com founders followed the Greater Fool business model.
    All the way to the bank I suspect.
    Educate others to grow our base of informed citizens, it's tyranny. Spread the Gospel.

    Prepare wisely individually. An army runs on it's stomach.

    Network with those who prepare wisely and take advantage of the strength in numbers and the economy of scale.

    Then, when the curtains come down and the truth is evident to an informed citizenry, we unite and fight the new world order.

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    .

    Meanwhile Walmart will be building a massive new corporate headquarters complex in Bentonville, Arkansas.

    https://www.cnbc.com/2019/05/17/walm...ntonville.html

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    Quote Originally Posted by bw View Post
    Sounds like the Jet.com founders followed the Greater Fool business model.
    Exactly. If Wong-Mart invested that money to increase their meager wages, they would have been much better off.

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