Wal-Mart Buys Jet.com in Hopes of Boosting Flagging Ecommerce Sales - eMarketer

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Wal-Mart Buys Jet.com in Hopes of Boosting Flagging Ecommerce Sales

With store sales flat, Wal-Mart looks to pump up ecommerce

August 9, 2016

Retail giant Wal-Mart announced it would acquire ecommerce pure play Jet.com for about $3 billion, in a bid to help grow the company’s ecommerce business and boost online sales of consumer packaged goods (CPG) and other everyday items.

Wal-Mart US Retail Store vs. Ecommerce Sales Growth, 2013-2016 (% change)

“Wal-Mart has been slow to grow its ecommerce business, but it’s a big ship to turn around,” said eMarketer analyst Patricia Orsini. “The acquisition of Jet gives them infrastructure—warehouses, a delivery system, and a fun way to buy online—as you fill your cart, the prices go down. Jet gamifies shopping for CPG products, an experience not usually identified with fun.”

eMarketer estimates that this year, ecommerce sales account for just 2.8% of revenues at Wal-Mart, which makes the bulk of its revenues at brick-and-mortar stores. But retail store sales growth has slowed dramatically in the past few years, down to just 1.6% in 2015 and into negative territory this year, according to company reports.

Ecommerce sales, meanwhile, are growing at Wal-Mart—but there too the company’s 2016 performance is worse than the US average, according to eMarketer estimates.

US Retail Ecommerce Sales, 2014-2020 (billions, % change and % of total retail sales)

eMarketer expects US retail ecommerce sales to rise by nearly 16% this year, substantially faster than Wal-Mart’s estimated ecommerce sales growth of 9.4% for 2016 and the 6.8% growth estimated for the past 12 months.

“Wal-Mart clearly needs to do something to jumpstart its ecommerce strategy, and adding Jet.com’s management team—and brand—seems like a very smart move,” said eMarketer analyst Yory Wurmser. “Jet.com’s expertise is in fulfillment optimization and pricing. Given Wal-Mart’s scale and physical store footprint, these improvements could turn Wal-Mart into a formidable price competitor to Amazon.

“Second, Jet’s brand could attract some customers who are turned off by Wal-Mart’s brand, either by poor ecommerce experiences in the past or by unhappiness with the core Wal-Mart brand itself,” noted Wurmser.

Overall, eMarketer estimates that 8.2% of total retail sales in the US will be transacted via digital channels this year—again, much higher than the share of Wal-Mart’s revenues from ecommerce sales. And the categories Jet focuses on tend to be even more reliant than average on brick-and-mortar stores.

Euromonitor reported in June that just 3.0% of 2015 dog and cat food sales in the US occurred via digital, for example—and that was the CPG category with the most ecommerce sales. For paper towels, by contrast, ecommerce sales made up just 0.3% of the total.

And these figures are not changing much. In 2014, 2.8% of dog and cat food sales were ecommerce sales, along with 0.3% of paper towel sales.

eMarketer does not break out CPG sales specifically in its ecommerce sales estimates. The health and personal care subcategory will see 7.2% of US sales occurring online this year, while food and beverage (which includes groceries as well as packaged food and beverages) will have just 2.5% of sales transacted online.

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