Jet.com has carved out a space in the online marketplace by promising to give customers more control over the price they pay for a basket of products.
The so-called smart-cart technology, which has been the focal point of the e-commerce business in its infancy, also proved to be attractive to Wal-Mart Stores Inc.
"Wal-Mart's advantage has always been in providing the lowest prices on a basket, and Jet has created a unique way to deliver the lowest-cost basket online," Wal-Mart Chief Executive Officer Doug McMillon said last month.
Wal-Mart will get to utilize the algorithm developed by Jet.com founder Marc Lore and his team after purchasing the e-commerce company for $3.3 billion last month. The retailer -- whose e-commerce business accounted for about $15 billion of its $482.1 billion in revenue during fiscal 2016 -- believes the move will continue to boost its online reach.
Wal-Mart is awaiting regulatory approval for the acquisition, which it expects by the end of the year. It was a hefty price to pay for a company that has been in existence for roughly two years, but analysts believe that the decision made sense because Jet's online plan of offering low prices through its technology aligns with Wal-Mart's principles.
"If there's one thing Wal-Mart has historically owned in the market, it's price," said Neil Stern, a senior partner at Chicago-based retail consulting firm McMillan Doolittle. "Being the lowest-price place, being the cheapest in the market -- that's really how they were able to build their business. As they've translated to online, I think that gets lost a little bit.
"What that algorithm addresses very nicely with Wal-Mart is the core proposition of saying, 'If you want the lowest price in physical stores, go to Wal-Mart. If you want the lowest price online go to Jet.'"
Jet's goal is to help customers shop in a smarter way with an algorithm that identifies the best values and shipping rates.
Prices are reduced in real time as customers build bigger baskets and select "smart cart" items, which are determined by factors such as the distance from a shopper's home and whether products can be packaged and shipped from the same warehouse. Additional savings are available at checkout based on other options like the type of payment customers select and whether they want to waive the right to return items.
McMillon said last month those type of shopping options are empowering for customers, who are more in charge of the price they pay. He also said it's "true to the spirit of Wal-Mart and our pricing policies over time."
Wal-Mart Chief Financial Officer Brett Biggs added last week that no one else has really developed a similar technology to rival the smart cart, which makes Jet.com an "interesting add" to Wal-Mart's portfolio.
"It's what we do at our stores," Biggs said. "If you think about it, we want to be the lowest price on every item. You won't always be that, but you want to be the lowest price on a basket of items and that's really what Jet is set up to do."
Analysts said maintaining an every-day low-price reputation in online retail, where prices are more dynamic and driven in real time, has been an ongoing challenge for Wal-Mart. So the technology also made the Jet.com acquisition predictable, said Anibal Sodero, an assistant professor at the University of Arkansas Sam M. Walton College of Business.
"Jet was acting pretty much on Wal-Mart's space," Sodero said. "Amazon, they cover many other areas. Wayfair, they're more specialized with furniture. But Jet.com had the potential to compete directly with Wal-Mart, so it was actually a threat for them. Getting rid of a competitor helps."
Wal-Mart's exact plans regarding the integration of the two businesses have not been divulged, but executives said the Jet.com and Walmart.com brands will remain separate.
McMillon also cautioned customers that it will take time to see changes as Wal-Mart first waits for regulatory approval, which could come later this year, and then begins the alignment process with Jet.com. Once the acquisition is approved, Lore will oversee operations at both Jet.com and Walmart.com as the retailer's next e-commerce chief.
Sodero has no doubt that the smart-cart technology will be implemented at Walmart.com in some form, believing it should help the retailer become more capable of "competing in the virtual world."
Stern agreed and said Jet has created a "potentially better mousetrap" than Amazon.com with a platform that has been innovative from pricing and shipping standpoints. He said Wal-Mart didn't appear to be getting there on its own.
"They're going to run two websites, there's no question," Stern said. "But if you've got this secret sauce, why wouldn't you bring it over to the Wal-Mart side of the business?"
SundayMonday Business on 09/18/2016