When Walmart (NYSE: WMT) spent $3.3 billion in 2016 to buy Jet.com, it didn't really want the online retailer's brand. It wanted the company's infrastructure, technology, and most importantly, its founder, Marc Lore.
Walmart CEO Doug McMillon knew that his company lacked the in-house expertise to scale its internet business to compete with Amazon. Buying Jet.com gave it that expertise, as well as a visionary executive who could enact the necessary changes.
Lore took over Walmart's U.S. digital operations and rebuilt them from the ground up. Under his watch, the company created the infrastructure needed to offer free two-day delivery, and it transformed its supply chain so its stores could fulfill individual e-commerce orders.
The retailer, which had been struggling to adapt to the digital sales era, managed a true omnichannel metamorphosis, and McMillon deserves credit for empowering the former Jet.com boss and his team to accomplish it. However, as Walmart.com has become a huge success, Jet.com has become an afterthought. That was probably always the plan, but the company just made it official.
Walmart has combined Jet.com with its regular operations. Image source: Getty Images.
What has Walmart done?
The retailer had already merged many Walmart and Jet teams. Now, those Jet.com teams that had remained independent will be folded into their Walmart.com counterparts, and Jet.com President Simon Belsham will leave the company in August. The Jet brand won't disappear completely, but it will be used in a much narrower way, according to a blog post from Lore.
"Last year, we repositioned the Jet site itself. Across most of the country, we saw we could get a much higher return on our marketing investments with Walmart.com, so we've dialed up our marketing spend there," he wrote. "However, in specific large cities where Walmart has few or no stores, Jet has become hyper-focused on those urban customers."
Essentially, Jet.com has become a niche brand used to serve customers in big cities, where Walmart has little penetration and its reputation holds less appeal. But the shrinkage of Jet.com shouldn't be viewed as any type of failure -- the reality is that Walmart did not buy Lore's company to build its brand. It bought Jet.com to integrate it into the larger company, and on that score, the purchase has been a stellar success.
Lore found a formula that turned Walmart into a major digital player and a leader in omnichannel shopping. That alone was easily worth the $3.3 billion price tag.
A much smaller Jet
When Jet.com launched as a national brand, it had huge ambitions. This latest iteration will be much humbler. Under the company's new structure, management of Jet falls under Kieran Shanahan, who also oversees the food, consumables and health and wellness categories for Walmart eCommerce.
"Jet continues to be a very valuable brand to us, and it is playing a specific role in helping Walmart reach urban customers," Lore wrote. "The focus has largely been on New York so far, and we're looking at other cities where we might bring together Jet's expertise and the scale and operating model of Walmart."
That's a fairly tactful way of describing what's happened to Jet.com. But its DNA has been fully integrated into Walmart, and its hard to see that as anything but a win.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.