Online retail in the United States is seeing the first real battles between the giants. The traditional retail conqueror, Walmart, is battling the original online retail disrupter: Amazon. The battle has raged for years and has seen Walmart and Amazon battle for staff (Amazon initially hired senior logistics staff from Walmart), brands, and more recently, customers. There are many similarities between the businesses: both have been accused of treating their staff with disdain, pushing brands for lower pricing via tough negotiating tactics, and using their assets to enforce low pricing. The premise is simple, Amazon wants to be Walmart before Walmart can become Amazon.
Lore, Quidsi, and the strained Amazon relationship
This story starts, in my opinion, when Marc Lore tries to sell his most well known consumer Internet business, Quidsi. Quidsi was the home to Diapers.com, Soap.com, and others which became involved in a price battle with Amazon. Amazon devalued Quidsi by driving diaper prices down and selling similar products at a loss to negatively impact Quidsi’s business. Amazon then launched Amazon Mom to leverage their new appetite for the diaper/mom business. By going into a price war, Amazon essentially ensured that Quidsi was in a no-win situation. Investors would not provide new capital with Amazon battling diapers.com, so Quidsi had 2 options: Sell to Amazon for less than market rate or go out of business.
The Quidsi investors were some of the first to see Amazon negatively impact their venture capital investments in online retail. After Quidsi initially declined Amazon’s approach, Amazon swooped in to buy the company. Lore was pressured to sell his company to Amazon by his shareholders. Amazon’s negotiation tactics for acquisitions are legendary: 30 day first right of refusal and unique preferential terms if other parties get involved. During the acquisition, Marc Lore made contact with Walmart to get the Arkansas based giant to buy his business. It was too late. Amazon moved in for the kill. Despite the corporate maneuvering, Quidsi investors earned decent returns in the sale, as did Lore for his shares.
As with most acquisitions, Lore and his Quidsi team had to work for Amazon for a period of time to accrue earn-outs and bonuses. In my opinion, Lore used this time to think about his next move. He wanted to build another ecommerce business he could sell, and after leaving Amazon, he hired the team that would become Jet.com.
Jet.com
Jet.com was initially positioned as a membership based marketplace. Customers would enjoy lower prices based on Jet’s volume buying and technology. They would leverage the proximity of the customer to the fulfilling business. Jet will go down in ecommerce history as one of the ‘buzziest’ businesses ever created. Raising hundreds of millions in capital allowed them to advertise widely and provide discounts to customers. Jet also leveraged affiliate networks to acquire products from brands that did not have products on Jet.com. Jet.com also published Amazon pricing on their products to provide further evidence that they were selling products at a lower cost than Amazon.
“Sorry, but a pricing model does not equate to a competitive advantage. When I see this stuff I fear the end is near.” – Bill Gurley (@bgurley)
Walmart
In August 2016 Walmart shocked the entire ecommerce industry by paying $3.3 billion( $3 billion in cash, $300 million in Walmart stock) for Jet.com. The 12 months following the acquisition proved why Walmart spent so much on buying Jet.com: Marc Lore. Lore became responsible for US ecommerce for Walmart and has steadily moved former Jet.com staff to positions of responsibility inside Walmart.com. Lore has been given support by Walmart CEO, Doug McMillon, to acquire businesses, create an innovation department, and leverage Walmart’s physical assets in new ways.
Strategic shifts
In the last 12 months Walmart/Jet.com has acquired the following businesses: Hayneedle (Furniture), Shoebuy (Footwear), Moosejaw (Outdoor) , Modcloth (Indie Clothing) and Bonobos.
Walmart online has struggled to convince merchants to sell on their marketplace due to brands not wanting to be seen on Walmart. This stigma has led to Walmart using Jet.com as the ice-breaker and first step of integration with the Walmart ecosystem. Walmart also acquired the iconic shoes.com domain from the bankrupt and now defunct parent company.
With Marc Lore at the helm of Walmart’s ecommerce efforts, he has been able to grow the marketplace effect on Walmart as Amazon merchants battle Amazon and seek to compete against the larger selection seen on Amazon.com.
By acquiring online retailers and digitally native vertical brands, Walmart is adding digital talent and resources to directly target Amazon. This is also part of the cultural shift that Marc Lore is trying to stir inside Walmart: more alignment between the online and offline efforts. Additionally, these acquisitions provide Walmart/Jet.com access to brands that have not been keen to participate in the Walmart.com marketplace. In battling Amazon, providing selection is critical. Millennials represent the fastest growing customer subset, and it is all out war between the major marketplaces to engage this segment effectively. Modcloth and Bonobos have created passionate customer communities around their brands, which is something that Walmart/Jet.com traditionally struggled to do.
It is clear to see that Walmart/Jet.com believes that Amazon is vulnerable in apparel, furniture and brands that are loved by customers. Their targeted investments are carefully planned and are clearly core to their customer acquisition strategy.
Leveraging Walmart’s assets
In the past 6 months, Walmart has leveraged assets that have become multi-purpose, ensuring less required investment for new concepts or programs. Whether it is better reordering, using staff to deliver products, free 2 day delivery to customers or pickup in store, leveraging teams and technology across the organization has yielded dividends in limiting required net-new investment in new initiatives. Walmart has also started investing in innovation, now boasting an innovation hub and startup partnership program.
Walmart is talking the talk. The real question is whether they are impacting Amazon’s bottom line in any meaningful way? Walmart has been a distant third in the ecommerce marketplace space. The last 12+ months have show great improvement and potential, but their nemesis has been building and innovating for 20 years, so Walmart has miles to go before they sleep…
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