Walmart is said to be in talks to acquire discount online retailer Jet.com in an attempt to better compete with Amazon.
Neither Walmart nor Jet.com has revealed any detail about the expected deal, but The Wall Street Journal cites sources familiar with the matter and reports that the retailer might buy Jet.com for $3 billion.
"It isn't clear how much Walmart would pay for the unprofitable startup, but a person familiar with the matter said Jet could be valued at up to $3 billion," says The Wall Street Journal.
That deal could be the biggest Walmart acquisition to date. The retailer's biggest acquisition was in 2010 when it acquired South Africa-based retailer Massmart Holdings for $2.3 billion.
Reports suggest that Walmart wants to purchase Jet.com in an attempt to boost its e-commerce efforts, make it grow beyond its brick-and-mortar store and give stiff competition to the likes of Amazon.
Jet.com may hit annual revenue of $1 billion, but the company is not yet profitable and spends a lot on advertising to attract traffic. The deal with Walmart will help Jet.com reduce its procurement and buying costs, but experts are of the opinion that the acquisition will bring little value to Walmart considering the $3 billion it is prepared to shell out.
"Walmart could certainly use some energy," said Bryan Gildenberg, an analyst at Kantar Retail. "I'm struggling with the math of why you would pay this much money for this business model at this particular time."
Walmart's e-commerce business generated a revenue of $13.7 billion in fiscal 2016 ended in January. The retailer's total revenue increased by 0.9 percent in Q1 (fiscal 2017), which is reflective of the growing competition from rivals.
On the other hand, Amazon's revenue in North America grew 25 percent in 2015. The international segment witnessed revenue growth of 6 percent.
Walmart's online retail business is estimated between $13 billion to $15 billion each year, which is significantly lower compared to Amazon's online retail business that exceeds $100 billion in annual sales. These numbers do not include the company's cloud service (AWS division), which is growing at a fast pace.
Another factor that may not help Walmart increase its online business with the rumored acquisition is that Jet.com ships products only in the U.S. Amazon sells products in the U.S. and in a number of countries outside the U.S.
Jet.com has a unique business model and it does not sell products at a fixed price. The retailer factors in the size of the order placed, shipping distance and more to confirm the price of its products. It remains to be seen if Walmart will continue with this business model after acquisition.
Photo: Mike Mozart | Flickr
