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With Jet.com, Walmart is Finally a True Amazon Competitor

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It’s official: Walmart Stores Inc. (WMT - Free Report) is acquiring online retailer Jet.com, a huge step forward in its quest to dominate ecommerce king Amazon.com Inc. AMZN.

The final decision has come after rumors started to swirl last week. On Wednesday, the Wall Street Journal, who cited people familiar with the matter, reported that Walmart was in talks to purchase Jet. It was uncertain what Walmart would pay for Jet, but now, it looks like the retailer is planning on shelling out $3.3 billion, marking Walmart’s largest acquisition since the company bought Massmart Holdings Ltd., a South African retailer, in 2012 for $2.3 billion.

Walmart said the deal includes roughly $3 billion in cash and $300 million of WMT shares, and is expected to close later this year. Jet’s CEO and co-founder, Marc Lore, will continue to run Jet, as well as assume a leadership position in Walmart’s ecommerce business.

“We’re looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that’s what our customers want,” said Doug McMillon, Walmart’s president and CEO, in a statement. “We believe the acquisition of Jet accelerates our progress across these priorities.”

“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,” Mr. McMillon continued.

What is Jet?

Headquartered in Hoboken, New Jersey, Jet is just over a year old, having publicly launched its site in July 2015. Like Amazon, Jet offers customers a massive online marketplace where they can purchase items at discounted prices. The company is known for its pricing strategies. As customers add items to their shopping cart, they are encouraged to choose additional products using pricing incentives, like having users choose a reduced price over the ability to return merchandise, or using a debit card over a credit card for purchases.

Since its inception, Jet has hoped to take on Amazon by targeting price-conscious customers who may be willing to forego fast deliveries for lower prices. There is no membership or annual fees—there used to be, however, a $50-per-year fee, but was quickly waived to build a large customer base—and customers only have to spend $35 in order to get free shipping. You can also get free two-day shipping on thousands of everyday essentials.

In comparison, for $99-per-year, Amazon Prime offers free two-day on hundreds of millions of its items, and the service has created an intensely loyal fan base. Its fast delivery and growing number of warehouses have given Prime members fewer reasons to shop anywhere besides Amazon.

Walmart, Now a True Amazon Rival

Now that Walmart has bought Jet, it has gained access to a platform that will finally make it a true rival to Amazon. In addition to price incentives, Jet’s technology is able to categorize, in real time, which orders should go to which vendors in order to pay the cheapest shipping and fulfillment costs. With the pressure Amazon Prime has put on the industry as a whole, Jet’s platform is a huge advantage for Walmart.

The world’s largest retailer recently unveiled the expansion of its ShippingPass membership program, and for $49 per year, members will get free, two-day, no-minimum deliveries of products purchased on Walmart.com. While this program is a big step for Walmart’s e-commerce business, it is still no match for Amazon Prime, and most Prime members will likely not switch to ShippingPass.

But with the addition of Jet, Walmart just might be able to sway any on-the-fence consumers. Jet has a growing customer base of city-living, millennial users, and the site has added over 400,000 new shoppers on a monthly basis. Higher-income shoppers is a demographic that Walmart has struggled to reach in the past, but its acquisition of Jet allows Walmart to bridge this divide.

While Walmart is getting a big boost to its ecommerce business with the purchase of Jet, the online retailer too is getting something out of the deal. Since its debut, Jet has yet to make a profit, as the company has spent heavily trying to market itself to new customers. But now, with the funds and resources of a multi-billion-dollar company, Jet has the potential to start raking in some serious cash.

Both Walmart and Jet will continue to operate as two distinct brands and websites, and “Walmart and Jet will leverage innovative technology solutions from both companies to develop new offerings to help customers save time and money,” said Walmart.

WMT stock is down about 0.65% in midday trading, and is currently a #2 (Buy) on the Zacks Rank.

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