Wal-Mart May Buy Amazon Challenger Jet.com for $3 Billion
Launched a year ago, Jet.com has received a huge amount of hype after getting hundreds of millions in funding and a nearly $600 million valuation before selling a single purse, microwave, or bottle of laundry detergent on its e-commerce site. Founded by Diapers.com founder Marc Lore, Jet originally launched its membership-based e-commerce site in July 2015 to take on brick and mortar warehouse clubs like Sam’s Club and Costco while also competing against Amazon’s bulk products business. For a $50 annual membership, Jet members could buy diapers, cleaning supplies, and sporting goods, promising prices 10% to 15% below elsewhere online.
But in October, Jet dropped its $50 membership fee, which at the time was one of its only ways to make a profit. Because of the discounted prices of around 10% on items, Jet doesn’t make a profit on its sales. But the company said that customers were still happy with 4% or 5% discounts, allowing the company to make some money from selling items like toilet paper and diapers.
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The company has also weathered reports that it was bleeding cash with no clear path to profitability, and scuffled with high profile brands.
But a few weeks ago, Lore told Fortune that Jet’s sales have tripled in the past six months and the company expects profitability in 2020. In December, it sold $33 million in merchandise compared with $90 million in May. The company is on a $1.1 billion run rate, he added.
Lore also said at the time that he is unlikely to raise another round of funding until later this year. In November, the startup raised $618 million in new funding on top of nearly $300 million raised previously. At the time, Jet was valued at $1.35 billion, according to reports.
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For Wal-Mart, Jet.com would be more arsenal to compete against e-commerce giant Amazon. Wal-Mart’s $13 billion e-commerce business is slowing and the company is under pressure from investors to grow. In the first quarter of this year e-commerce sales rose only 7% in the quarter. “Growth here is too slow,” Wal-Mart CEO Doug McMillon said on a pre-recorded call following earnings.
According to recent data from eMarketer, Wal-Mart is the second largest U.S. online retailer, with $12.5 billion in sales in 2015, a far cry from the $82.8 billion Amazon pulled in.
Wal-Mart has been looking to beef up its online marketplace, and said recently it would be adding 1 million items per month to its site. By acquiring Jet.com, Wal-Mart would get more than just an e-commerce site, it would also potentially buy the e-commerce experience of Lore, who sold Diapers.com (whose parent company was Quidsi) to Amazon in 2010 for $545 million. Lore ended up spending a few years with Amazon before founding Jet.com.