The whispers and rumors were finally "confirmed" on Wednesday at the Wall Street Journal website. The Thursday newspaper included a front page story on negotiations involving the potential purchase of Jet.com by Walmart.
The start-up online retailer has been operating for less than one year, but the purchase price is expected to exceed $1 billion. (See a May 2016 profile by Money Magazine).
If a purchase is concluded.
The combination is conceived as contributing to Walmart's effort to compete more effectively online. I don't think the purchase of Jet.com would help much. I am concerned it could hurt Walmart's strategic transformation.
Maybe there's some secret sauce. Maybe I'm blind to something fundamental. But from my angle Jet.com could be an expensive distraction and the price tag for the distraction would end up being a multiple of whatever purchase price is eventually negotiated.
Walmart surged to success during the final years of mass markets, especially rural and exurban mass markets. It was a pioneer in applying contemporary supply chain management concepts and technology to efficiently deliver a wide assortment of products at lower-than-competition price-points, but with sustainable margins because of its SCM advantage.
Since the 1980s Walmart has effectively adapted to the shifting demand-pull of it customer base as wage stagnation and the rural-urban growth divide each exacerbated. I doubt that Bentonville ever set out to "own" the lower and lower-middle income non-urban brackets. But in responding to its customers, this is often where Walmart has ended-up.
Amazon emerged during the death knell of mass markets and the proliferation of micro-markets, the availability of online retail to find and serve these micro-markets, and the growth of an affluent, time-constrained, largely urban customer-base ready to try... buy... and drive retail trends. Piper-Jaffray has found that 70 percent of Americans with household incomes above $112,000 subscribe to Amazon Prime.
Seattle is different than Bentonville. Each have their charms, each their strengths and weaknesses. One is much better predisposed than the other to claim affluent, urban, online shoppers. (Jet.com is headquartered in Hoboken, New Jersey.)
I don't see how buying Jet.com shifts this landscape. Walmart and Amazon are each great at SCM, finance, behind-the-scenes technology, and most other fundamentals. Walmart is burdened with serving a huge customer base that is -- arguably -- disadvantaged in embracing the future. If Walmart customers demanded fast-fashion, Walmart would deliver and probably do so better than Zara. But that's not what Walmart customers are communicating in their billions of daily pull-signals. Of course Walmart is paying attention.
The powerful pull-signals of their largely lower-to-middle income, non-urban customer base seriously complicates the ability of Walmart to innovate in terms of online merchandising, branding, and culture... where the battle for the future of retail will largely be decided.
Despite this profound challenge, I think Walmart could still have a long-term advantage over Amazon... largely because of its supply chain strengths. But not if it is distracted from addressing the strategic center-of-gravity.
MONDAY, AUGUST 8 UPDATE:
Walmart announced this morning that an agreement has been reached to purchase Jet.com for $3.3 billion. The Wall Street Journal has a related report and analysis.
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