I have purposefully not commented on Walmart’s ecommerce efforts after the retail giant acquired Jet.com. There were many immediate reactions to the acquisition but the simple truth is that no-one had any idea how it would end up. Let me be clear – the acquisition is a long term bet by Walmart on Marc Lore and his team to grow their ecommerce efforts. This is also a reflective post in which I am trying to be as objective as possible.

The day Walmart & Jet.com shocked the entire ecommerce industry

On 8 August 2016 Walmart shocked the ecommerce industry by announcing their acquisition of Jet.com for $3.3 billion.  $300 million will be paid via Walmart stock. The acquisition ensured that early Jet.com investors made large returns on their bet but no-one expected Walmart to be the ultimate end game for Jet.com as the company rapidly gained size via heavy spending on advertising, low pricing and buzz.

The initial thinking was that Jet.com was acquired due to the business taking market share away from Sam’s club. Jet.com used bulk sales and technology to provide customers with low pricing. It is important to note that while Jet.com was a startup Marc Lore ensured that he never mentioned Jet.com as an Amazon competitor but rather it was described as online version of bulk retail operations seen at Sam’s Club and Costco. I also need to mention that once Jet.com launched publicly it initially was going to use a membership fee to subsidize the low pricing it would provide to consumers. In a space of 6 months Jet.com moved away from the membership fee as customers were not willing to pay another subscription to a retailer (I believe that this was aimed at Amazon Prime but Lore under estimated the impact that Prime has on customers.)

I strongly believe that until the day of the Walmart acquisition, Jet.com did not have a business model that was sustainable nor clearly defined their future.

The task that Lore faces

After the acquisition it has become clear that Marc Lore was a large factor in the acquisition process. Lore is seen as one of the best ecommerce minds in the US. Not many founders can tell the story of selling their business to Amazon initially and then selling their next business to Walmart.

Marc Lore has been handsomely paid via Walmart stock (the retail stock that has provided investors with large returns only Amazon stock has similar returns). Lore has the following targets in my mind:

  1. Lore has been given autonomy by Walmart CEO Doug McMillon to align the retail and ecommerce businesses in such a way that Walmart can be dominant in both online and offline retail. This is a giant task in which Lore will need to recreate a culture that has always been focused purely on physical retail.
  2. As President of Walmart Ecommerce US, Lore needs to create the strategy to ensure that Walmart can catch up with Amazon who has a huge lead in terms of online retail. Lore has not been shy to state that Walmart is behind and thus they need to be win for him to be successful at Walmart.
  3. Lore needs to grow the assortment that is seen on Walmart.com and Jet.com as they are relatively small in comparison to Amazon’s gigantic catalogue (363 million products). Part of this target I believe is dealing with brands who dont want to see their products on Walmart.com.
  4. Acquire businesses that makes logical sense for Walmart.com and Jet.com. This will be a lever to also build a team inside Walmart that understands ecommerce and the changing landscape that is seen inside the industry.

The Report Card

Over the last 12 months Walmart via Marc Lore has done a lot to battle Amazon. In all the years of covering Amazon I doubt if any competitor has been as strategic as Walmart in their efforts to grow their business.

Acquisitions:

Walmart / Jet.com have spent close to $600 million to acquire ecommerce businesses primarily to get access to brands that they do not have relationships with. Secondly the acquisitions also adds domain expertise to the Walmart operations as in most cases the CEO’s of the businesses have now become the leaders of the category at Jet.com and in some cases at Walmart. Hayneedle ($90 million), Shoebuy ($70 million), Moosejaw ($51 million), ModCloth (undisclosed) ,  Bonobos ($310 million) have all been acquired with a lot of press coverage on businesses that were facing tough financial questions.

Rating: B-

Reasoning: After acquiring customer favorites such as ModCloth and Bonobos, Walmart / Jet.com has seen customer dissatisfaction and community unhappiness. The communities around these brands are in some cases the most valuable asset for some of the businesses acquired and thus unhappiness will negatively impact long term revenue creation. I believe that Walmart / Jet.com will acquire more direct to customer ecommerce businesses in order to acquire domain expertise in some categories.

Innovation:

I believe that innovation is a very important part of multi channel ecommerce. As Walmart is trying to reuse some of their physical assets (store locations), proprietary data (store level sales data) innovation is an important part of the equation to deliver success. In the past 12 months Walmart has been willing to try things which will have positive financial impact (store collection is a huge financial asset for any retailer as that provides the opportunity to upsell the customer via impulse purchases). Free 2 day shipping or in store collection, using retail staff as delivery personel, using instore collection as a price influencer and creating an innovation unit.

Rating: A

Reasoning: To create 4 major programmes that impacts Walmart’s core business inside a 12 month period is indicative of a business that has been re-energized and willing to try things. This I believe is one of the clearest signs of Lore’s impact at Walmart – he ended Shipping pass which was a membership based delivery concept and then replaced it with 2 impactful programmes. It was a clone of Amazon Prime that felt no part of Walmart’s efforts.

Talent acquisition and retention:

Walmart has been able to gain some great ecommerce talent to their ranks inside the last 12 months. Marc Lore, Andy Dunn and others have all taken additional responsibility once joining Walmart. Yes, I know that we are inside 12 months but there has been very little talk of any of the startup founders leaving Walmart once their businesses were bought. I suspect that I will revisit this topic in 12 months time.

Rating: A

Reasoning: In my newsletter a few weeks ago I mentioned that I beleive that Marc Lore has been mentoring certain direct to customer CEO’s while he was CEO of Jet.com. It is obvious that he created deep relationships with certain individuals who were investors of Jet.com who helped with introductions to digital talent that has been growing large businesses. The challenge will be to retain these relationships and ensuring that talent like Dunn stays at Walmart for a prolonged period of time.

Wall Street:

As Walmart is a public company they are at the mercy of their shareholders. Walmart stock has been a consistent performer since Sam Walton provided it to Walmart staff as a way to pay them for their efforts. This provides challenges in that Walmart will not go a acquisition streak in which they buy over valued companies (Bonobos and Jet.com can be seen as such but they were a means to an end) in saying that the Walmart stock price provides you with more than evidence of how Wall Street feels about the last 12 months.

Rating: A

Reasoning: Walmart stock has been on a growth trajectory for the last 12 months as quarterly results have remained consistent. The next 12 months will show the real impact of these investments.

The Challenges:

Amazon does not ever stand still and will continue to innovate as they are driven to ensure that customers find their service delightful. Amazon has the scale to put financial pressure on Walmart US unlike any competitor either has ever faced. They have already shown that they will answer any challenge that Walmart provides. Whether it is free shipping thresholds, blocking bots from Walmart or adding additional features to Amazon Prime, Walmart will have to continue to invest into Jet.com and all of the various concepts such as the Latch concept seen in New York.

I believe that in years to come Walmart will have a problem that will potentially be one of Marc Lore’s biggest challenges. Currrently Walmart and Jet.com both are operational as a way to onboard brands that dont want to be seen on Walmart.com. Jet.com has become the defacto place for Walmart private label products at the expense of Costco private labels which will negatively impact Jet.com sales. Jet.com is also the place where the brands that were acquired via their various acquisitions are exposed to Jet.com customers. Bonobos and ModCloth products are the first to be seen on Jet.com after being only online on their direct to customer brand websites. Will both brands survive long term or will they end up one platform (Walmart.com) in years to come?

The Walmart marketplace has been seen by some as a distraction and I disagree. Walmart provides their marketplace sellers with a platform alongside Jet.com has significant upside in comparison to Amazon. Having a considerably smaller product selection (4x less) provides marketplace sellers with an opportunity to be found easier and to make sales.

On Wednesday Amazon is holding its own meet-and-greet with merchants in New York, where 1,500 invitees will have an opportunity to network, grab face-time with Amazon executives and attend seminars on how best to reach potential customers around the globe. It’s the first such event since the company opened for business more than 21 years ago.

“They need to get sellers to subscribe to the Amazon religion,” says Chad Rubin, co-founder of Skubana, which sells e-commerce management software. “Amazon has gotten so large and so anonymous for sellers, this event helps make them more personal. It’s trying to show sellers it cares about them.”

In Conclusion

As an Amazon bull (I am long Amazon) the first 12 months of Marc Lore being at the helm of Walmart Ecommerce US has been fascinating to watch. He and the Jet.com have made signifcant impact on Walmart’s business inside a 12 month period. One good year does not mean that Walmart has caught up with Amazon nor does it mean that Amazon has an undisputable position in physical retail.

Amazon and Walmart are not battling for the future of US ecommerce as hard if not harder than what is seen any large retail / ecommerce market. When Amazon’s purchase of Whole Foods Market clears it will add another point of friction between these 2 behemoths.

As a customer in the US you are in the greatest position since the creation of Walmart to have significant benefit from the battle of 2 large business that are doing everything to get your wallet open and a share of your expendible cash. Can the momentum generated in the last 12 months by Lore be seen in 12 months time?