Walmart (WMT +0.81%) was criticized for spending $3.3 billion on Jet.com in 2016 because it was an unprofitable and unproven e-commerce site, though many believed the true purpose was to get the brains behind the business, Marc Lore, the e-commerce wunderkind who sold his online diaper business to Amazon.com (AMZN 0.38%) for $545 million.
But now, just over three years later -- and following a period of dramatic upheaval in the retailer's e-commerce division in 2019, as well as its U.S. business as a whole -- it seems the critics were right:
- Jet.com is no longer a stand-alone business, but has been folded into the broader e-commerce unit.
- Walmart eliminated the e-commerce site's dedicated executive.
- More of Walmart's marketing has shifted to its own website and away from Jet.
- Digital investments are now targeted to Walmart.com.
- Walmart sold off ModCloth, a vintage apparel site that was purchased to help drive traffic to Jet.
- Other businesses acquired under Lore's watch have also been considered for sale (though it ultimately decided to keep the men's clothing site Bonobos).
All of the reshuffling is taking a toll, and traffic to the Jet.com website is dwindling to almost nothing. Data from website analytics firm SimilarWeb shows that during the frenzy of the Christmas shopping season this past December, the Jet website attracted just 1.4 million visitors, a tiny fraction of what it used to see at its height.
Image source: Getty Images.
A shadow of its former self
To put the withering-away of traffic in perspective, that's almost 83% less visits than it had in December 2018, and nearly 96% below the number it attracted the year Walmart bought the company. For further context, Walmart.com had 469 million visits this past December, making it the ninth most trafficked e-commerce site, while Amazon was No. 1 with over 2.7 billion visits.
The shift in focus by Walmart to driving customers to its own website, instead of to Jet.com, explains the decimation witnessed in visits, but it doesn't actually mean the billions spent to acquire the e-commerce company were wasted. Let's call it a learning experience.
The acquisition was crucial to Walmart becoming laser-focused on its digital assets. Not only has it become a prime competitor of Amazon.com, but Walmart is now widely considered the leader in online grocery sales.
A giant leap forward
The next line of attack will be to make its online business profitable. While it was estimated that Walmart will lose $1 billion on its e-commerce efforts when it reports full-year earnings (which is also why there was a shake-up in the business), it recently accelerated its efforts to monetize its website with a self-service programmatic ad-buying initiative.
It's a method that companies as diverse as Roku, Snap, and Spotify have used to increase revenue and grow their business, since it allows advertisers to use software to purchase ads.
No doubt the purchase of Jet.com was an expensive learning curve for Walmart, much like its acquisition of the money-losing business Flipkart in India. But adding Lore to the company's team and tapping into his expertise has enabled Walmart to derive benefits that will last longer and generate returns in excess of the e-commerce site's purchase price.
There are other lessons to be learned here as well, such as the difficulty of being an online-only business in a world increasingly being shaped by omnichannel commerce. Even Amazon understands that a physical presence not only helps but is necessary.
Certainly $3 billion is a lot of money, but it's safe to say Walmart didn't waste it buying Jet.com.
