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Wal-Mart Closes Jet.com Deal, Retains Focus on E-Commerce

Zacks Equity Research
Updated

It seems that Wal-Mart Stores Inc. WMT is leaving no stone unturned to acquire a stake in the online business. In this regard, the retailer continues to make huge investments in e-commerce initiatives, including acquisitions. Recently, Wal-Mart completed the acquisition of e-commerce company, Jet.com, Inc., which marked a huge step forward in its quest to dominate e-commerce king, Amazon.com, Inc. AMZN.

The aforementioned deal, announced on Aug 8, includes roughly $3 billion in cash and $300 million of Wal-Mart shares, which will be paid over time. As a result of this acquisition, the company expects some marginal dilution over its initial estimate to fiscal 2017 earnings.

Walmart.com and Jet.com will operate as separate brands, while leveraging technology and talent across both entities. Jet’s CEO and co-founder, Marc Lore, will continue to run the company, as well as assume a leadership position in Walmart’s e-commerce business in the U.S.

WAL-MART STORES Price and Consensus

 

WAL-MART STORES Price and Consensus | WAL-MART STORES Quote

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Headquartered in Hoboken, NJ, Jet offers customers a massive online marketplace where they can purchase items at discounted prices, just like Amazon. 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. This includes offering users the facility to choose a lower price over the ability to return merchandise, or using a debit card over a credit card for purchases.

With the acquisition of Jet, Wal-Mart has gained access to a platform that will finally make it a true rival for 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 facilitate the cheapest shipping and fulfillment costs. With the pressure Amazon Prime has exerted on the industry as a whole, Jet’s platform will offer a huge advantage to Wal-Mart.

Apart from acquisitions, the Bentonville, AR-based Wal-Mart has also launched its own mobile payment system called Walmart Pay. This allows shoppers to pay through its existing smartphone app. After testing the new payment system at selected stores, Wal-Mart launched the facility in all of its 4,500-plus U.S. stores in Jul 2016. This marks another step toward accelerating its online business, and making shopping easier and faster.

Further, last month, Wal-Mart inked an agreement with CommerceHub, a leading distributed commerce network for retailers and brands, to expand its existing partnership. CommerceHub will also integrate directly with Wal-mart’s online third-party marketplace. CommerceHub has a vibrant network of approximately 9,500 customers, including many of the largest retailers, marketplaces and brands in North America, which will be able to team up with Walmart.com, one of the largest online retailers.

Wal-Mart has also partnered with ride hailing services Uber and Lyft for speedy online grocery deliveries. Moreover, it intends to roll out drones in the near term for product deliveries to Wal-Mart facilities as well as to consumer homes.

We note that the company has been making efforts to understand the evolving needs of its customers to regain their confidence, and thus, boost sales in the face of increased competition from traditional and online competitors. Apart from investing in e-commerce activities, the company is also paying its workers more and training them to improve its stores’ performance. Wal-Mart being the largest private employer in the U.S. with 2.2 million staff, has pledged to invest $2.7 billion toward raising their wages and providing them extra training in fiscal 2017. Under the initiative, Wal-Mart raised its minimum wage to $9 an hour in April, and to $10 per hour in Feb 2016.

Wal-Mart currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some well-positioned retailers include Tilly's, Inc. TLYS and The Children's Place, Inc. PLCE. Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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