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Global retail store, Walmart, has said it is no longer interested in operating Jet.com, an e-commerce firm it acquired in 2016 to battle Amazon for e-commerce revenue. The decision came as a shock considering COVID-19 has nearly changed how people are shopping, with e-commerce gaining ground among the people globally amidst the coronavirus outbreak.
Walmart had acquired Jet.com for about $3 billion a year after the e-commerce company launched. It was expected to compete for the market share and cut the dominance of Amazon in e-commerce. Walmart had also purchased Jet.com to limit the threat of Amazon on Walmart's earnings as shoppers began to embrace online shopping and delivery.
Why is Walmart no longer interested?
The decision to discontinue Jet.com proves the expectations haven't been met even though Walmart stated that “The acquisition of Jet.com nearly four years ago was critical to accelerating our omni strategy.” While watering down the challenges faced by Jet.com, Walmart cited the growth of Walmart.com as a reason for the shutdown.
“Due to continued strength of the Walmart.com brand, the company will discontinue Jet.com,” Although, before the announcement of discontinuation of operation, Walmart had been gradually integrating some experience of Jet.com into Walmart and closing down some sections of Jet.com.
Walmart now plans to focus on giant stores to meet demands of its online shoppers and walk-in customers. Speaking on the withdrawal, Walmart Chief Financial Officer, Brett Biggs' said, “The decision to withdraw guidance reflects significant uncertainty around several key external variables and their potential impact on our business and the global economy, including the duration and intensity of the COVID- 19 health crisis globally, the length and impact of stay-at-home orders, the scale and duration of economic stimulus, employment trends and consumer confidence."
Biggs'added, “Our business fundamentals are strong, and our financial position is excellent. Customers trust us to deliver on our brand promise, and I’m confident in our ability to perform well in most any environment. While the short-term environment will be challenging, we’re positioned well for long-term success in an increasingly omni world.”
The problem with Jet.com
The specific problem is not known, other than it has not performed to expectations. The earnings of Jet.com is not available as Walmart doesn't separate it. However, Walmart had disclosed that e-commerce sales increased by 74% in the quarter, including store pickup and delivery, ship to home, ship from store and marketplace channels, Tech Crunch disclosed.
So the problem with Jet.com is not well laid out as 74% hike in sales of e-commerce is expected to encourage Walmart to keep pushing Jet.com. And with Walmart still maintaining its own online store (Walmart.com), the decision to discontinue Jet.com shows the growth in online sales probably doesn't reflect in the books of Jet.com which had been tipped to rival Amazon.
Another factor seen as a problem is the long term impact of COVID-19 on overall sales. While demands for online shops have increased, the economic fallout of coronavirus might cause a hike in overhead costs in the long term. So maintaining two online stores amidst the challenges of COVID-19 might be too costly for Walmart; so discontinuing Jet.com might also be a way of cutting costs.
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