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Walmart’s Fear of Amazon Is Getting Expensive

August 4, 2016, 12:30 PM UTC
Non-perishable food is displayed at a Walmart store in Secaucus, New Jersey
Non-perishable food is displayed at a Walmart store in Secaucus, New Jersey, November 11, 2015. REUTERS/Lucas Jackson - RTS6KQB
Lucas Jackson — Reuters

Walmart buying online retailer is one of those deals that seems almost blindingly obvious. Why? Because Walmart has been trying—and mostly failing—to compete with Amazon for years, and Jet fancies itself an Amazon competitor.

But would buying Jet (assuming it actually happens) really give Walmart what it needs to succeed against its online adversary?

Not that long ago, comparing Walmart and Amazon would have seemed absurd, let alone suggesting that the former might need to be afraid of the latter. As recently as 2014, the Arkansas-based giant was worth more than twice as much as Amazon. Now, the online retailer’s market cap (AMZN) is almost twice that of Walmart—closing in on $400 billion—and its business is still growing rapidly.

That Walmart is even considering paying $3 billion for a year-old company is evidence enough that the company is feeling the heat. If completed, it would be the most expensive deal it has done in six years.

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It’s not clear that Jet would be able to solve Walmart’s (WMT) competitive problem, however. Jet has shown no evidence it can compete with Amazon except by dramatically underpricing the online giant, using strategies that will require massive amounts of funding and therefore hold little promise of ever being profitable.

For Jet, a Walmart acquisition would be a huge win, since it would save the company from ever having to prove it has a realistic chance of success. But it’s not at all obvious that it would be a win for Walmart.