Analysts say the Jet acquisition will be key to its online sales success moving forward.

Wal-Mart Stores Inc. wants to be known as an e-commerce force that is moving forward.

“We’re going to grow e-commerce faster,” CEO Doug McMillon told analysts and investors during Wal-Mart’s investor presentation on Thursday. “This company, over time, is going to look like more of an e-commerce company. We’ll still run great stores, and we know how to do that. Customers want a seamless relationship. That’s in our favor. But we’ve got to build this e-commerce business in this country and in others to be there in the future.”

Chief financial officer Brett Biggs told analysts that Wal-Mart projects online sales growth of 20-30% during the second half of 2016, a trend he and Wal-Mart’s management team expect to sustain over the next several years.

To that end, Wal-Mart will continue to invest in its e-commerce capabilities. As part of its planned $11 billion in capital expenditures for 2017, it will expand its digital offerings, such as online grocery services and products on, and remodel stores while cutting back on new-store openings.

The retail giant, No. 4 in the Internet Retailer 2016 Top 500 Guide, is investing more than $1 billion in digital improvements this year. At its investors’ day a year ago, Wal-Mart said it would spend nearly $2 billion on its e-commerce business over the 2016-17 period, with $900 million earmarked for this year and $1.1 billion in 2017.


One of the keys to advancing on the e-commerce front, analysts and Wal-Mart executives agree, is going to be the retailer’s $3.3 billion acquisition of online marketplace startup in August. In acquiring, Wal-Mart also gained founder Marc Lore, who became president and CEO of Wal-Mart e-commerce. Wal-Mart announced that its deal to acquire Jet closed on September 19.

“While only time will tell, we believe Wal-Mart will benefit from’s complementary customer base (urban/millennials), access to premium brands, innovative technology solutions (dynamic basket building/pricing model) and experienced leadership team,” writes Peter Benedict, managing director of equity research at Baird.

“Only 13 months out from its launch, has a $1.2 billion run rate and should help Wal-Mart drive smarter baskets through EDLP (short for everyday low price) 2.0,” writes Paul Trussell, an analyst with Deutsche Bank, referring to the evolution of Wal-Mart’s strategy of offering lower prices than its competitors.


“If you can let customers play a role in this process, a legitimate, authentic, transparent opportunity for customers to participate in a way that helps lower systems cost and you give that money back to them, you can win,” McMillon said. “We did that before and we want to go do it again.”

McMillon said Wal-Mart may benefit from Jet’s variable pricing model, which allows shoppers to save money on purchases by opting for slower shipping times or choosing not to be able to return items.

“One of the things that I got most excited about that Marc engineered into Jet was this ability to let the customers play a role in the process,” he says. “I’ve always felt like if you could show them where our costs come from and help them make different choices, they could save us money and we could pass it on to them.”


Lore told analysts Jet is adding 500,000 customers per month. Prior to being acquired by Wal-Mart, the online marketplace startup had raised $565 million across four rounds of funding. Now that it’s under the Wal-Mart umbrella, Lore says Jet is benefitting greatly from Wal-Mart’s resources.

“Leveraging the store capabilities with in-store pickup, I think, is a huge advantage because it avoids last-mile delivery costs, which is about 70-80% of total delivery cost,” Lore said. “So if you’re able to fulfill stuff in an e-commerce warehouse and you have enough volume to line-haul stuff directly to the store, your cost to ship is $1 a package. It’s an incredibly powerful asset.”

But not everyone is necessarily sold on how Jet and Wal-Mart’s pricing models match up.


“The way they (Wal-Mart) talk about the smart cart (how Jet refers to its variable pricing option) makes me think that they do want to incorporate that,” says Laura Kennedy, an analyst at Kantar Retail who tracks Wal-Mart. “I just have a hard time seeing how the smart cart jives with a retailer that is every day low price and no gimmicks. I understand wanting to give them the lowest price and flexibility, but it’s just hard to believe that Wal-Mart would make its online platform work like that and think about basket economics in that way.”

McMillon says another key to the retail giant’s e-commerce growth will be the company’s online marketplace.

On the call, McMillon said the number of items available for sale on the marketplace has more than doubled, going from 8 million in January to 20 million in October. Wal-Mart launched its online marketplace in 2009.


“The trajectory of growth related to U.S. e-commerce in the marketplace is strong, and we need it to be,” he says.

Some say Wal-Mart’s investments in its marketplace are paying off for those merchants that sell online through it.

Scot Wingo, executive chairman of marketplace advisory firm ChannelAdvisor Corp., says his company’s clients that sell on Wal-Mart’s Marketplace have generated significant sales so far from it.


“They were operating under the radar for a while and now they have been actively promoting and recruiting (for) their marketplace,” he says. “The results have been quite strong.  For some of our customers, Wal-Mart Marketplace is as big as Amazon, which has exceeded expectations.”