April 13, 2017    3 minute read

Will Acquisitions Help Walmart Catch Up with Amazon?

The Race for Online Retail    April 13, 2017    3 minute read

Will Acquisitions Help Walmart Catch Up with Amazon?

Almost every retailer now stresses the concept of the ‘omnichannel strategy’. Traditional retailers are extending their online presence, as consumers demand more online interactions. Among these retailers paying particular attention to the online is Walmart.

The American giant shut down several non-performing shops and started a series of acquisitions last year when buying Jet.com. In March, Walmart announced that it had finalised the acquisition of both the assets and operations of ModCloth, an online retailer specialising in women’s fashion and accessories.

Why the Acquisitions?

Despite the fact that Walmart ranks second in US e-commerce sales with $13.5bn in 2015 (eMarketer), it is not a close second. Amazon dominates the category with its 79.3 billion dollars, and Walmart still has a very low percentage of its total sales coming from the online channel, i.e. approximately 2.8%. However, e-commerce is becoming more and more important in its strategy.

Firstly, as a press statement explicitly reports, the objective of these acquisitions is to get expanded e-commerce growth and customer reach. It is no mystery, in fact, that the company wants to strengthen its online capabilities – and the fastest way to do so is through acquisitions.

Technology know-how was one of the main rationales behind initial Jet.com acquisition. Indeed, there was a special interest in acquiring Jet’s technology as a means to identify instantaneously which vendor should take each order – in order to minimise fulfilment and shipping costs. This model, which had allowed Jet to offer big discounts to bigger orders, was of special value for Walmart given the Amazon Prime Now offering. Pricing technology and the use of the marketplace models were other technological elements that played a role in the Jet acquisition.

Secondly, and most importantly in the case of ModCloth acquisition, the choice of the fashion segment is strategic. The fashion e-retailing represents one of the most promising segments in the e-commerce arena, and acquisitions certainly bring strong business relationships. As competition with Amazon is crucial, increasing the universe of product offered becomes fundamental. This last acquisition, as it was for ShoeBuy’s acquisition, will be useful to widen product offering on Jet.com, with the aim of increasing both the average spend per current customer and the customer base.

Thirdly, the target choice is very specific: millennial women. Millennials make massive use of the Seattle e-retailer for their shopping, and represent a source of diversification in terms of customer targets. With Walmart total revenues declining from $485bn in 2015 to $482bn in 2016, enlarging the customer base is a way to generate additional revenues.

Is Walmart’s Strategy Right for It?

The main concern arising from these acquisitions is the integration factor. So far, Jet.com has stayed a separate entity and all the new acquisitions have folded under the Jet.com umbrella. There are still doubts about how Walmart’s website will ultimately benefit from this wave of acquisitions.

When acquiring Jet.com, Walmart and Jet maintained distinct identities, with Walmart focusing on a low price strategy and Jet on a wider, more selected assortment. Walmart and Jet will share technology, but the financial operation is far from having realised synergies at full potential.

To conclude, it is clear that this is a diversification strategy, not only in terms of the channel but also in terms of business segments. Walmart remains the biggest retailer in the world, but as its last financials have shown, it is time to rethink its strategy. Online sales have a big weight in it, and Walmart definitely needs to catch up. Which will be its next target?

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