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Making Sense Of Walmart's Decision To Close Jet.com: 'Mission Accomplished'

Jayson Derrick

Retail giant Walmart Inc (NYSE: WMT) disclosed this week in its first-quarter report that it is closing Jet.com, the e-commerce company it bought in 2016 for $3.3 billion. The timing and rationale of the decision created some confusion among investors.

Benzinga reached out to Robert McGovern, CEO of the retail data firm PreciseTarget, to better understand Bentonville's divestment.

Jet's Price Tag In Context

Walmart is among the most valuable companies in the world, which imply the price tag it paid for Jet.com is small, McGovern told Benzinga in an e-mail.

Walmart's stock valuation stands at around $360 billion, so a $3.3-billion acquisition amounts to "a 1% bet."

"This is equivalent to a millionaire making a $1,000 bet," he said. "Not a lot of sleep is being lost in Bentonville today."

It would be incorrect to claim Walmart "lost" $3 billion, as it did a great job of integrating Jet into its mainstream shopping platform, the PreciseTarget CEO said. 

What Jet Brought To The Table

Jet's original purpose was to serve as an "entry foyer" for Walmart, as it gives brands the opportunity to "get to know" the retailer, McGovern said.

The business also gave Walmart new exposure to a more affluent customer base through upgraded product brands, he said. 

Over time, management integrated Jet.com's features and capabilities, which made it easier for brands to migrate toward Walmart's platform.

"It looks pretty brilliant to me," McGovern said. "If you increase Walmart.com revenue by 1%, you probably pay for Jet in less than one month of revenue."

Finally, Walmart's decision to shed the business during the COVID-19 pandemic is more of a coincidence, in the retail expert's view.

Walmart likely took one final look at Jet.com and the integration process and concluded "mission accomplished, everything is now integrated into the mothership," he said. 

Jet Was One Part Of Walmart's Big Picture

Walmart didn't grow to a company doing $500 billion in revenue by playing "chess one move at a time," McGovern said. Jet is just one part of a bigger puzzle.

Walmart is always thinking "three or four chess moves in advance," he said. While the company is now better off after integrating Jet, there is still much more work to do.

Walmart is focused on complex issues like supply chain optimization, automation in thousands of stores and artificial intelligence technologies for product assortment planning, the PreciseTarget CEO said. 

Walmart Vs. Amazon

Walmart's acquisition of Jet was additive to its business, as it satisfied a strategic need, McGovern said.

In contrast, Amazon.com, Inc. (NASDAQ: AMZN) had no use for Jet's technology and people, and it probably already owned the customer base, he said. 

"Had Amazon made the acquisition and lost $3 billion, rather than saying 'mission accomplished,' I'd add #fail to the end of my tweet."

Related Links:

A Modern Retail Winner: Wall Street Bullish On Walmart Following Big Q1

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Photo courtesy of Walmart. 

 

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