When Walmart (NYSE:WMT) spent $3.3 billion to acquire Jet.com in 2016, it was a sign that the retail giant was getting serious about e-commerce.
For years, Walmart had stood by as Amazon (NASDAQ:AMZN) came to dominate online retail, essentially unchallenged by the world's largest retailer. Walmart was reluctant to make the necessary investments and absorb the losses required to match Amazon, which ran its e-commerce business at breakeven for much of its history.
By 2016, the threat from Amazon had become too real, and Walmart shelled out billions for Jet.com, an unprofitable e-commerce start-up founded by Marc Lore, regarded as one of the best minds in online retail. Critics called the deal a "acqui-hire," meaning Walmart had bought the company just to get Lore's services.
Since then, based on most conventional metrics, Walmart's e-commerce strategy looks like an overwhelming success. Since Walmart announced the Jet.com acquisition in August 2016, the stock is up 60%, comparable sales have increased every quarter, and e-commerce sales have regularly grown in the 40% range.
However, despite those strong numbers, Walmart has faced a number of setbacks along the way. It just announced the latest of them, saying it would close Jetblack, its premium shopping service in New York.
Jetblack goes dark
Walmart said that Jetblack, an experimental concierge service where customers order by text, is shutting down on February 21, and the company will lay off about 300 employees. The service was unprofitable. Walmart tried to find a buyer for it, but was unable to do so and chose to shut it down rather than continuing to fund it.
Walmart launched the service to gain insights that could inform other e-commerce initiatives and deliver sales growth, rather than to be a profit center. However, the service was losing more money than expected: an average of $15,000 annually per member, according to The Wall Street Journal. Walmart itself spun the story in a positive light, saying it would apply learnings from Jetblack to Walmart, but its closure just two years after its launch has to be viewed as a disappointment.
Jetblack isn't the only e-commerce business that hasn't fulfilled its promise for Walmart. Under Lore, one of the company's strategies had been to acquire digitally native brands to fortify the company's own online offerings and bring in talent. Among the brands it acquired were Moosejaw, Modcloth, Bonobos, Eloquii, and Art.com. However, more recently the company backed away from that strategy, as it has struggled to generate profit from those brands or add value. In some cases there was a clash of cultures and company values, and some customers balked that these niche brands had been taken over by the retail giant.
Walmart ended up selling Modcloth last year (just two years after buying it), likely for less than it paid. The retailer says it is now focused on developing its own direct-to-consumer brands rather than acquiring them.
In January, Walmart said it was shutting down the corporate headquarters of Hayneedle, the online furniture brand it gained when it acquired Jet.com, laying off more than 200 employees in the process. Bonobos, the menswear brand it paid $310 million for in 2017, laid off dozens of people last October, a sign that growth hasn't materialized as expected. Walmart also folded the Jet.com business into Walmart, leaving the website intact, but essentially deemphasizing that brand.
The big picture
There's no doubt that Walmart has had e-commerce successes in recent years. The biggest one has been the expansion of its online grocery pickup and delivery program, which has driven most of its e-commerce sales growth. A majority of Walmart's U.S. revenue comes from grocery, and it's the country's biggest grocer, giving it an advantage that it can leverage against Amazon and other rivals.
The retailer has also introduced free two-day shipping on orders of $35 or more, expanded its selection of merchandise online, and rolled out hundreds of pickup towers in stores to make it easy for customers to retrieve online orders.
However, Walmart's e-commerce business is bleeding red ink. Walmart's U.S. e-commerce division was on track to lose more than $1 billion in 2019 on $21 billion to $22 billion in revenue, according to Recode. Meanwhile, tensions have emerged between Lore and other members of the executive team, as Walmart isn't used to operating like a start-up or losing money.
At this point, it's too soon to call Walmart's e-commerce strategy outside of grocery a failure. Still, with the shuttering of Jetblack following a number of setbacks in the digital brands Walmart acquired, it has become clear that the strategy isn't playing out as hoped. Meanwhile, Amazon gets bigger and bigger each quarter, and its Prime membership program jumped from 100 million to 150 million members globally in just 19 months.
As Walmart flails with experiments like Jetblack, its chances of catching its online rival in e-commerce are getting slimmer.