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Amazon may finally have a formidable competitor

Jet.com is an up and coming player in online retail.

NOTE: Wal-Mart announced on August 8 it agreed to buy Jet.com for $3 billion.

Wal-Mart Stores (WMT) is reportedly in talks to acquire online retailer Jet.com, a move that should have the executives at Amazon.com a little nervous.

This deal could potentially be a game changer for retail. While Wal-Mart is massive in the brick-and-mortar business, it is nowhere near is big as Amazon.com in the online retail space. In 2015, Wal-Mart’s e-commerce business generated about $13.7 billion in sales, which is a fraction of the $50.4 billion Amazon.com delivered during that same period.

“We think this has the ability to shift the e-commerce landscape,” Pacific Crest analysts said. “[W]e think that a combination of Wal-Mart’s best-in-class logistics and significant buying power ($482 billion in revenue in 2015) and Jet.com’s high-growth retail model would make the combined business a formidable competitor.”

Pacific Crest estimates that Jet.com saw gross merchandise volume (GMV) of $1 billion in May. Jet.com management has said it is targeting GMV of $20 billion by 2020. While e-commerce is Wal-Mart’s fastest growing business, it continues to lag expectations.

“WMT’s global eComm sales grew by a relatively meager 7% in 1Q,” UBS’s Michael Lasser noted. “Even if the US rate was 50% higher than the overall, it still would represent less than half the growth of Amazon.”

Amazon is the king of online retail. (Image Barclays)

“Growth here is too slow,” Wal-Mart CEO Doug McMillon said in May. “We can see progress against several of the necessary capabilities we need to win in e-commerce but we’re still working on a few others. We need them all to come together to see stronger growth.”

To be sure, there’s no confirmation that this deal is actually happening. And Jet.com will probably come with its risks too. Lasser noted reports of Jet.com burning through cash.

“We aren’t sure that the addition of Jet.com would be the easy or the right solution, but it shows WMT is looking to take action,” Lasser said.

Sam Ro is managing editor at Yahoo Finance.
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