Can Wal-Mart (WMT) Ever Match Amazon (AMZN) Online?

Wal-Mart (WMT) is the undisputed king when it comes to brick and mortar retailers, but its online sales have always lagged in comparison. Maybe Wal-Mart didn’t feel the pressure to make an enormous push to boost online sales, as it always outperformed other retailers when it came to revenues.

The writing, however, is on the wall. While physical stores might never completely disappear, there’s no doubt any retailer serious about succeeding will have to focus on Internet sales. For these retailers, Amazon can’t be left to continue its dominance in this field.

That’s why Wal-Mart just made the biggest e-commerce acquisition in history. Wal-Mart shelled out a hefty $3.3 billion to acquire Jet, an online retailer that directly competes with Amazon (AMZN).

Jet is barely a year old, but Wal-Mart sees the acquisition as a way to bring in new users and drastically improve its online presence. Its e-commerce has always been an afterthought to its stores, and this purchase suggests that strategy is changing. The question is can this investment actually pay off.

Why Purchase Jet?

Opinions are definitely mixed on Wal-Mart’s enormous purchase. Time will tell if it’ll work out. What’s undisputed is that the acquisition of Jet is a huge opportunity for Wal-Mart to reinvent itself.

Jet makes no bones of taking on Amazon directly by offering lower prices than its chief competitor. It does this through an intriguing combination of pricing and technology. To keep products cheaper than Amazon, prices are based on a number of factors. Ordering products from the same distribution center pushes down the price, as does the option to waive the right to return the product. Debit cards also bring in further discounts than using a credit card.

All these factors go against Amazon’s simple “one-click shopping,” but it’s been working with customers. Jet is tiny compared to Amazon, yet its growth of 400,000 users per month is probably what appealed to Wal-Mart the most.

Taking E-commerce Seriously

Wal-Mart’s $353 billion in revenues generated in 2015 is more than triple what any other retailer, including Amazon, brought in. Its online-only sales, however, were far less impressive. In that same time period, Wal-Mart’s $13.7 billion put the company between Dell and Staples (SPLS). Meanwhile, Amazon made an estimated $92.4 billion

Slowing Sales

Another reason it makes sense for Wal-Mart to step up its online game is to make up for stagnating sales within its stores. Wal-Mart has seen same-store growth all but flatten out, to the point that the 1 percent growth of in-store sales reported in its Q1 2016 earnings was seen as a big win.

The Amazon Strategy

Part of the reason for Amazon’s success is that it’s never shied away from purchasing competitors that are delivering niche products successfully. That’s what led Amazon to purchase companies like Diapers.com for more than $500 million and Zappos for $847 million.

Wal-Mart, meanwhile, was far more conservative. However, “conservative” isn’t a word that could be used to describe Jet founder Mark Lore. It was Lore who co-founded Diapers.com. Two years later, Lore left Amazon and formulated his plan to take on Amazon directly.

Finding Its Space

When Jet started to find success, Lore stated he knew his new company wouldn’t be able to dethrone Amazon and there was room for a big second-biggest online retailer. He told the AP that he’d be happy to get a 10 percent share of a market worth a trillion dollars.

With the deep pockets of Wal-Mart, Jet can afford to aim even higher now. If Wal-Mart is able to successfully integrate Jet with its existing online efforts, then Amazon might start to see some serious competition. If not, then Wal-Mart just spent way too much money.

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