Already an eCommerce, as well as brick-and-mortar, giant, Wal-Mart upped the ante on their digital commerce bet acquiring an online retailer that focuses on an optimal user experience and offers a different customer base. Many analysts say the Jet.com acquisition was geared at competing with Amazon, although it may just be part of a long-term growth strategy that relies more on eCommerce retail while physical retail sales stay stagnate or decline.
Amazon grossed $88 billion in online sales in 2015, according to Internet Retailer, and has been first place on the Top 500 list for many years. Walmart, however, isn’t too many places behind, coming in at fourth on Internet Retailers list of the 500 largest e-retailers based on U.S. sales. Immediately after Walmart’s $3.3 billion investment in Jet.com was announced, many retail analysts voiced their opinion that this acquisition was made so the nation’s largest brick-and-mortar retailer could keep up with the largest online retailer, Amazon. But there’s more to the story than that.
While Amazon is the leader online, Walmart is still a much larger and more profitable company today. In Walmart’s previous fiscal year (which ended January 31, 2016), the company earned $482.1 billion in gross revenue and $14.7 billion in profit globally. Comparatively, Amazon earned $107 billion in gross revenue and $596 million in net revenue worldwide in 2015. However, Amazon enjoyed 21 percent growth in gross sales year-to-year, while Walmart experienced a slight decrease (0.7 percent). While they are larger company today, these figures show that the tide is turning for Walmart, who earned less than 3 percent of total sales online ($13.6 billion) last year.
Brick-and-mortar retail has been sputtering while eCommerce retail sales boon for several years now. According to the U.S. Department of Commerce, total retail sales (seasonally adjusted) grew just 2.2 and 2.3 percent in the first two quarters of 2016 relative to Q1 and Q2 2015, while eCommerce retail sales increased by 15.5 and 15.8 in the same time frame. The final two quarters of 2015 fared even worse for total retail sales, at 1.6 and 1.4 percent growth in Q3 and Q4 2015 compared to 2014, while eCommerce retail grew more than 15 percent in each of these quarters compared to the same quarter one year ago. Retail and financial analysts are now starting to view having too many physical stores as more of a liability, as retailers like Old Navy receive less favorable financial outlooks because they have more than 1,000 stores in the U.S., and brick-and-mortar retailers like Sports Authority go out of business. Macy’s recently announced they would close 100 physical retail locations, which equates to 14 percent of their brick-and-mortar stores.
The pressure online and mobile retail sales are putting on brick-and-mortar is likely a major factor influencing Walmart’s multi-billion dollar acquisition of Jet.com, a company that wasn’t even profitable yet. Although with a massive product catalog and 400,000 new shoppers per month, the company has a lot to offer. Additionally, Jet’s consumer base tends to be younger and higher income relative to Walmart’s, helping the company reach a demographic more in-line with Amazon’s customers. While Walmart has grown their eCommerce business over the years, they are looking to reach beyond their core customer to ensure this growth continues, and at a more rapid pace. Walmart CEO Doug McMillon emphasized the focus of the acquisition stating that “Walmart.com will grow faster,” and that “the seamless shopping experience [they’re] pursuing will happen quicker.”
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