Walmart announced earlier this week that it had agreed to acquire e-commerce start-up Jet.com for $3.3 billion, making headlines as the largest e-commerce acquisition to date. In this light, Unilever’s recent splash of $1 billion for Dollar Shave Club now seems almost quaint by comparison. While Walmart can certainly afford such a purchase, it smacks of being a defensive move to take a potential competitor out of the market that will provide questionable value to the retailer in the long term.

Jet.com has scant history and lots of hype

In case you haven’t seen its ubiquitous ads, Jet.com is an online retail site that was founded by Marc Lore, the entrepreneur best known for building up Diapers.com and selling it to Amazon for $500 million in 2010 after a vicious price war. Lore’s previous track record made it possible to raise an initial $80 million in venture capital funding for Jet.com, which increased to nearly $600 million in the next two years.

Jet.com’s strategy is to go after customers that are obsessive with saving money. A search for a specific product returns a view of the item that is the cheapest, rather than a whole selection of competing items the way Amazon does. The company further differentiates itself from Amazon and other retailers with what it calls “dynamic pricing”: customers are rewarded with lower prices when they buy more items, since that decreases shipping costs, and at check-out the site calculates which sellers are more efficient in shipping and adjusts the price to use those sellers.

Dynamic pricing is an innovative way of making online ordering more efficient, but it’s still new, as is Jet.com itself. In addition, Jet.com has about 3.5 million registered users, which doesn’t have much meaning if these users are driven primarily by cost savings rather than brand loyalty.

So why would Walmart pay such a premium for a three-year old company with just a year of operations under its belt and no profitability in sight? One explanation, from analysts at emarketer, is that it will give a much-needed jolt to Walmart’s e-commerce sales.  Online sales have grown more slowly at Walmart over the last few quarters compared to both competitors like Amazon and Target as well as to the U.S. e-commerce market overall.

An acquisition to stave off rivals rather than boost growth

I don’t agree that this acquisition will give Walmart a boost in its e-commerce business. The company has already invested billions in e-commerce operations and infrastructure, and has long had a vast supply chain infrastructure that supports its physical stores that can be adapted to encorporate e-commerce. This suggests that Walmart’s problems with e-commerce growth have more to do with a lack of omnichannel retail vision: how the company can integrate in-store and online to retain existing customers and attract new ones that might otherwise not shop at Walmart.

Walmart’s anemic e-commerce growth also hints that internal organization changes still need to take place in order to to realize an omnichannel vision. There is plenty being invested in employee training, wages, and technology at  the company’s physical stores, which according to recent financials are seeing an uptick in traffic. The next step for Walmart should be how it can connect its digital and physical channels for its customers to take advantage of this improved store traffic. Jet.com, as a pure-play online retailer, does not bring that to the table.

What this acquisition does do is take Jet.com out of play from competing with Walmart directly, or from being acquired by Amazon or another Walmart competitor. Given Marc Lore’s unsettling experience with being run out of business in a price war with Amazon prior to being purchased by same, it would not be surprising if this was a major motivation for him to sell to Walmart. Walmart may now own Jet.com, but it still has a need to improve its omnichannel customer experience if it is to see e-commerce grow faster in the future.

If you’re interested in learning more about how your organization can benefit from an omnichannel strategy (without spending $3 billion trying to do it), please contact us!