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Why Is Walmart Acquiring Jet?

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Why Walmart is taking on Amazon

Walmart (WMT) announced that it has entered into a definitive agreement to acquire e-commerce startup Jet.com for $3.3 billion. Walmart agreed to pay $3 billion in cash and the remaining $300 million in stock for the one-year-old startup. Jet has generated loads of buzz by promising to offer lower prices than Amazon (AMZN) and eBay (EBAY).

Walmart has been grappling with decelerating e-commerce sales growth, as you can see in the graph below. Much of that was due to increased competition from Amazon. However, Walmart’s recent move could bolster its e-commerce growth by expanding customer reach and enhancing its capabilities, which would help it compete better with Amazon.

Walmart said it will keep Jet.com as a separate brand. Jet’s CEO (chief executive officer) Marc Lore will lead both Walmart.com and Jet.com, taking over for Neil Ashe.

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How Walmart benefits from the deal

The deal is likely to strengthen Walmart’s competitive positioning against Amazon, since Jet.com has seen incredible growth in a very short time. Walmart said that Jet has been adding 400,000 new shoppers monthly and has achieved an annual run rate of $1 billion in GMV (gross merchandise volume).

The deal is likely to augment Walmart’s e-commerce growth by combining the company’s retail expertise with lower prices, expanded offerings, effortless shopping experience, and, most importantly, customer reach. Jet has a growing customer base of more urban and Millennial customers with higher household income, exactly the kind of customers Walmart has been chasing.

The deal, subject to regulatory approval, is expected to close by the end of 2016.

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