Let’s be honest. A year ago, investors assumed Wal-Mart Inc. (WMT) was dead money, another casualty of the Amazon.com (AMZN) retail juggernaut.
Its $3 billion acquisition of Jet.com, a profit-free ecommerce platform, was seen as a Hail Mary — a desperate move, by a desperate company. However, a year later, its ecommerce sales are booming.
Investors missed the bigger picture: To win, you have to field a competitive team.
At the time of the Jet.com deal, it had just $500 million in sales. Wal-Mart paid six times revenues for a money-bleeding platform that appeared certain to lose to Amazon.com over the longer term. It lacked warehouse infrastructure, inventory and supply chain relationships. It lacked scale.
What it did have was cutting-edge technology, and a founding ecommerce visionary, in Marc Lore.
In 2005, Lore co-founded Diapers.com. The idea was simple. The company would sell baby products to time-deprived new parents. With little more than credit cards and a rented truck, Lore and partner, Vinit Bharara, began fulfilling orders. By 2009, the company was renamed Quidsi, and its product line expanded to beauty, pets, toys, household products, sporting goods and organic food.
A year later, Amazon.com acquired Quidsi for $545 million.
In many ways, the Wal-Mart buyout is a repeat of the Amazon.com purchase of Quidsi. It combines the platform innovation and startup mentality of Jet.com, with warehouse infrastructure, inventory and supply chain management.
So far, it has been a huge win. Wal-Mart immediately appointed Lore as CEO of U.S. ecommerce. His first major move was the announcement of free shipping on orders over $35. He followed that by growing the online inventory from 10 million items, to 67 million. He worked a deal with Alphabet to bring that merchandise to its voice assistant. And he is leveraging its extensive network of stores as pickup points.
The strategy is working. In each of the first three quarters with Lore at the helm, online sales have increased by 50% or more, year-over-year.
Meanwhile, Lore maintained the Jet.com brand, to sell upscale items for higher margins. It is even vying for Metro Millennials with its own line of groceries. Whole Foods (WFM), beware.
Jet.com would have been an absurd purchase for any other brick-and-mortar retailer. For Wal-Mart, given its scale, it was a perfect fit.
Wal-Mart managers did their homework. They understood the best way to meet the Amazon.com challenge was not to build an ecommerce platform from scratch. Rather, it involved finding a visionary leader, and then giving him and his team all of the equipment required to compete.
It’s a longer-term strategy that investors have embraced. The stock has risen to a record high, surging 35.69% since the Jet.com deal. This is no small feat considering the SPDR S&P Retail (XRT) Exchange-Traded Fund is down 4.99% over the same time frame.
None of this happened by accident. A year ago, when Wal-Mart managers were the subject of constant derision, they remained focused on the bigger picture. They continued to do the things that made the Arkansas company the largest retailer in the world. They focused on the supply chain. They built cutting-edge infrastructure and inventory-management systems.
They stuck to their knitting, knowing they had not lost the online game to Amazon.com.
This is what great companies do. They leverage their strengths to build competitive advantages.
Honestly, this is a rare skill set. Not many companies are capable. But these are exactly the kinds of companies I find each month for members of my Power Elite newsletter.
The trick is to find them when investors have given up. This does not happen often.
During the past three months I have pointed Power Elite members to these rare opportunities in everything from pizza and credit cards, to cell phone towers and regional bank software. Click here to see how you can gain instant access to my newest recommendation.
More opportunities are on the horizon, as Wal-Mart’s success with Jet.com will inspire much innovation in ecommerce in coming years.
Best wishes,
Jon Markman
