Millennials driver for Jet.com buy

Its clients considered big draw for Wal-Mart

An employee assembles customer orders at the Jet.com Inc. fulfillment center on Cyber Monday in Kansas City, Kansas, in November.
An employee assembles customer orders at the Jet.com Inc. fulfillment center on Cyber Monday in Kansas City, Kansas, in November.

Retail experts believe there are several potential benefits to Wal-Mart Stores Inc.'s $3.3 billion acquisition of e-commerce company Jet.com.

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Bloomberg News

A worker double checks the contents of a customer order before sealing the package for shipment at the Jet.com Inc. fulfillment center in Kansas City, Kansas, last year.

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Bloomberg News

An employee collects items for customer orders at the Jet.com Inc. fulfillment center in November in Kansas City, Kansas.

One of them is the opportunity the Bentonville-based retailer has to tap into higher income urban millennials, a segment of the population that doesn't typically identify as Wal-Mart shoppers.

"As big and wonderful as Wal-Mart is, when you put Walmart.com on it, there's a certain and fairly sizable demographic that might not go there because they don't necessarily identify themselves as Wal-Mart customers," said Neil Stern, a senior partner with Chicago-based McMillan Doolittle. "So I think by having the Jet platform, it gives you access to a more upscale customer, a broader customer base."

Wal-Mart announced the Jet.com deal last week, acquiring the startup founded by entrepreneur Marc Lore to challenge Amazon.com behind the promise it would provide big savings.

In the announcement, Wal-Mart said Jet demonstrated an ability to scale with speed by reaching $1 billion in gross merchandise value and 12 million items in its first year. Wal-Mart also pointed to the e-commerce company's success in adding 400,000 new shoppers a month, which includes a "growing customer base" of urban and millennial shoppers.

Wal-Mart Chief Executive Officer Doug McMillon credited Jet.com CEO Lore for focusing the site since its launch toward the population segment, which falls into a higher income group than the average Walmart.com shopper. According to a 2015 Kantar Retail study, the average Wal-Mart shopper was a 50-year-old making $53,125 annually.

"That's not to say that Wal-Mart doesn't have a lot of millennials shopping online and in the stores. We do," McMillon said during a conference call. "But Jet has been able to attract some brands that we don't have at Wal-Mart, which is one of the reasons why we're excited about this acquisition."

Millennials are typically defined as the segment of the population ranging between the ages of 21-38. The group, which boasts about 80 million adults, has become the largest in the United States and also is surpassing all other generations in purchasing power. Many live in urban areas as well and are more likely to shop online or with their mobile phone.

A 2015 Nielsen Scarborough study indicated 27 percent of millennials earned more than $75,000 per year, while 15 percent earned more than $100,000. A large segment of millennials shopped Wal-Mart, but "upscale millennials" who earned more than $75,000 were less likely to frequent the retailer.

Jason Dorsey, an author, speaker and millennial expert for the Austin, Texas-based Center for Generational Kinetics, said attracting those higher-income urban millennials hasn't been a problem for Jet.

"On the surface, people see this as an aggressive move," Dorsey said of Wal-Mart's acquisition. "I see it as a defensive move because Wal-Mart has not been able to get the marketshare that they want, in particular, with millennials. With Jet they basically buy a road map on how to do it."

Dorsey said Jet's online marketplace has been popular largely because of its aggressive marketing and promise to deliver a better e-commerce experience. The newness of the e-commerce company, its low-price vow and customized shopping experiences are all important traits for millennial consumers.

"That whole tailored experience is what millennials want," Dorsey said. "And Jet has definitely put itself out there saying that's what we provide and millennials are the first to jump on it."

But Wal-Mart hasn't been idle. Last year, McMillon pointed to data indicating income growth worldwide will "disproportionately" come from middle- and-upper income households. He said the company's ability to attract a more diverse base of customers would be key to Wal-Mart's growth.

Wal-Mart has tried to attract those customers with its e-commerce efforts, but has now acquired some outside help in Jet. The companies will maintain distinct brands and McMillon said "the essence of those brands will continue to be different over time." Carol Spieckerman, president of Spieckerman Retail, said keeping the companies separate could be beneficial to Wal-Mart.

"By operating Jet.com as a separate entity (rather than dissolving the brand folding it into Walmart.com) Walmart has a better chance of maintaining and growing Jet.com's existing customer base, mitigating the potential of alienation-by-association," Spieckerman said in an email.

It's too early to determine the long-term impact on urban and millennial shoppers, but Fayetteville-based research firm Field Agent conducted a study of 250 Jet.com users before the sale was announced.

According to the firm, 46 percent of those polled said they'd be neither more or less likely to shop at Jet.com if it was purchased by Wal-Mart, while 28 percent said they'd be more likely and 27 percent would be less likely.

Ultimately, Dorsey said time will tell how beneficial the acquisition becomes in helping Wal-Mart attract more of the urban and millennial customer base.

"The trick is, how do they attract millennials who aren't interested in going to Wal-Mart or maybe don't have a positive brand relationship with Wal-Mart, but who might like to buy the products at the great prices?" Dorsey said. "By keeping the two brands separate, I think it does allow Jet to continue to build this unique culture and brand and messaging. But it also gives Wal-Mart the benefit of having that talent and team start to apply those techniques to the Walmart.com brand."

SundayMonday Business on 08/14/2016

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