The Supply Side: Analysts speculate on Walmart’s quandary over Jet.com

Editor’s note: Since this story was originally published in the Feb. 17 issue of the Northwest Arkansas Business Journal, Walmart reported fourth-quarter and fiscal 2020 earnings. In the quarter ending Jan. 31, Walmart reported e-commerce sales growth of 35% for the quarter and 37% for the fiscal year, each of which were above expectations. Walmart executives also addressed the investor community on Feb. 18, and said e-commerce losses will be flat to lower this fiscal year. Walmart also said it expects to benefit from the recent organization and consolidation activities within its e-commerce division. Walmart executives told investors it has not invested in Jet.com, because Walmart.com is gaining traction and has greater efficiencies than Jet.com. Executives said because they made the pivot, combined with strong e-commerce growth across the company, including the investment in Flipkart, the company expects global e-commerce sales of nearly $50 billion this year. 

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The Jet.com acquisition continues to draw questions for Walmart nearly four years after the $3.3 billion deal was made. Wall Street analyst Deborah Weinswig of Coresight Research recently said, “Walmart-owned Jet.com looks to be in near-terminal decline.”

Weinswig reports Jet.com saw traffic slide to an all-time low in December despite strong overall retail sales. Web-traffic firm SimilarWeb reports Jet’s December visits totaled just 1.4 million, tumbling 82.5% from one year earlier and almost 96% from the site’s peak of December 2016.

Walmart in 2019 began consolidating some of the executive roles of Jet.com and Walmart.com. In August, Jet president Simon Belsham exited the company. Walmart eCommerce CEO Marc Lore said the Jet team would report to Kieran Shanahan, who would also continue to oversee food, consumables and the health and wellness categories for Walmart.com.

Lore said in August the consolidation was a natural progress of integration between Walmart and Jet. As of August, the entire Jet business — retail marketing, technology, analytics, products and back office — was merged into Walmart.com.

Kantar research reported Jet.com sales declined by 45% in 2019, and the share of household reach for Jet.com declined to 2% from 3% between late 2018 and 2019.

UNWINDING UNDERWAY
Keith Anderson, senior vice president of strategy at Profitero, said Walmart’s plans for Jet are unclear. He said suppliers continue to be told to focus on Walmart.com and the number of products Jet is now offering has been reduced, which points to the likelihood of Jet being shelved.

Anderson said in trying to match similar products for pricing comparisons between Walmart, Target and other competitors, Jet.com often does not have like items listed for sale. That started last year and has continued, according to Anderson.

Weinswig said the Jet.com decline follows a series of changes in 2019 including closing Jet.com’s grocery division, which served New York City for less than one year. Walmart was reportedly seeking investors to spin off its JetBlack shopping concierge division.

Walmart recently announced it would integrate the Hayneedle business and select functions within Walmart.com. That decision resulted in the layoff of about 200 workers in the Hayneedle headquarters in Omaha, Neb. That is Walmart’s second large restructuring at Hayneedle in two years, with the total elimination of more than 400 jobs.

Hayneedle, a home furnishings retailer, was part of the Jet.com acquisition in 2016. Walmart said the Hayneedle.com website will continue to offer specialty home items, while Walmart.com will include access to Hayneedle’s private brands, Belham Living and Coral Coast.

Walmart.com drew heightened media attention last year with estimates the business unit was still bleeding losses of at least $1 billion a year. That was despite heavy spending on fulfillment efficiencies, expanded online item counts and several digital retail acquisitions designed to give Walmart.com more insights in higher-margin categories such as specialty apparel and home. Amid the ongoing losses in 2019, Walmart.com began to unwind some of its recent acquisitions, starting in October with the sale of ModCloth.

Weinswig said the sale of ModCloth and the paring back of Jet.com imply Walmart is renewing its focus on core digital assets, pushing to grow its online grocery business. She said the retail giant seems to be unwilling to subsidize loss-making businesses.

When Walmart president and CEO Doug McMillon was asked by Wall Street in June about the retailer’s appetite to continue investing in divisions losing money, he said it is taking longer to get to profits for Walmart.com than originally thought. That said, McMillon remains supportive of growing the website and said he knows it’s been expensive.

Lore signed a five-year contract with Walmart in August 2016, and many believe he will remain with the retail giant through the contract but leave shortly afterward. He has said he will stay through the five years.

Former Jet executives Belsham and Liza Landsman have already moved on. Landsman took over as president of Jet when Lore became head of e-commerce for Walmart U.S. She left the company in 2018, and Belsham was promoted to president. That position was eliminated in August 2019. Andy Dunn, co-founder of Bonobos — also acquired by Walmart — announced he was leaving the company in January after two years.

Walmart has reportedly been shopping Bonobos to investors, though the retail giant never confirmed it.

JET BACKSTORY
When Walmart paid $3.3 billion for Jet.com in August 2016, Wall Street saw the move as bold and somewhat necessary to help the Bentonville-based retailer up its online game.

At the time, it was the highest price Walmart had paid for an internet retailer. The plans at the time were for the two companies to run autonomously, with Jet keeping offices in Hoboken, N.J., where Lore would continue to reside and work as CEO of Walmart U.S. eCommerce.

McMillon said in 2016 Walmart was looking for ways to lower prices, broaden assortment and offer the simplest, easiest shopping experience possible for customers.

“We believe the acquisition of Jet accelerates our progress across these priorities,” McMillon said in August 2016. “Walmart.com will grow faster, the seamless shopping experience we’re pursuing will happen quicker, and we’ll enable the Jet brand to be even more successful in a shorter period of time. Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Walmart.”

In 2018, Walmart said Jet would continue to focus on urban areas like New York City, San Francisco and Chicago, where Walmart had struggled to grow share. But within a year, that strategy seemed to unravel, with Walmart looking for ways to cut costs by integrating the businesses any way it could do so.

In 2019, Walmart deliberately gave more focus to Walmart.com for marketing spend at the expense of Jet.com. Lore justified the move saying, “Across most of the country, we saw we could get a much higher return on our marketing investments with Walmart.com, so we’ve dialed up our marketing spend there.”

Weinswig said it’s no surprise Jet.com has seen reduced traffic because, without marketing, it’s much harder for digital retailers to stay atop the mind of shoppers. She said heavy marketing spending and increased fulfillment costs associated with picking and shipping orders, typically make online-only retailing a costly business.

GROWTH CATALYST
Weinswig said should Walmart shrink Jet.com further or close the business outright, its legacy appears to have been to jump-start Walmart.com. She said Walmart.com has developed into a marketplace with lots of choices as the site offered around 75 million items in early 2019, up from 35 million in January 2017.

Anderson said the expensive Jet deal has been a growth catalyst for Walmart.com. And while the deal hasn’t worked out as the partners originally envisioned, Walmart has benefited from top talent and insights gleaned from Lore and his team. He said this was a bold bet in 2016 that showed Wall Street just how serious Walmart was in trying to better compete online.

In its latest reported quarter, ended Oct. 25, Walmart U.S. e-commerce revenues increased by 41% year-over-year, supported by strong online grocery growth.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.