The 1 Part of Walmart’s Online Strategy That Isn’t Working

Walmart (NYSE: WMT) paid $3.3 billion in 2016 to acquire, an e-commerce start-up that was trying to go toe to toe with Amazon. That acquisition was a pivotal moment in Walmart's transition to an omnichannel retailer. Jet CEO Marc Lore took over Walmart's e-commerce operations, and initiatives like free two-day shipping and online grocery pickup turned Walmart into a genuine threat to the e-commerce leader.

Walmart's numbers speak for themselves. U.S. e-commerce sales soared 37% in the first quarter of this year, driven by online grocery as well as home and fashion products. The rollout of free next-day shipping in major cities this year should help Walmart maintain its robust e-commerce growth rate.

Trouble with

While Walmart's e-commerce strategy has undoubtedly been a success, one aspect hasn't really worked out. Walmart retained the brand after the acquisition, positioning it to cater to young, urban customers. That move made sense -- Walmart's brand certainly carries some baggage, so Jet was a way to tap into a customer base that didn't necessarily have a favorable view of the retailer.

But hasn't lived up to expectations. Walmart announced on June 12 that it's merging's teams with those of its core online business, along with eliminating the position of Jet president. Jet is being refocused on specific large cities, which has led to a smaller business overall. Walmart is deprioritizing in favor of, according to a report from Reuters.

Signs of this shift away from started to appear earlier this year. Some large and medium-sized consumer goods companies that sell to both Walmart and Jet told Reuters that purchases had begun to skew toward Walmart starting in March. Other vendors told Reuters that they were discouraged by Walmart from spending resources on Jet-related sales strategies.

In a blog post announcing the changes, Walmart's Lore emphasized that Jet was still an important part of Walmart: "Jet continues to be a very valuable brand to us, and it is playing a specific role in helping Walmart reach urban customers. The focus has largely been on NY so far, and we're looking at other cities where we might bring together Jet's expertise and the scale and operating model of Walmart."

The good news

While Walmart's acquisition of Jet can be viewed as a failure given the deemphasis of the brand, the deal helped reorient Walmart's online strategy. E-commerce is now a key component of Walmart's growth story, and online grocery in particular is an area in which the company is thriving. While Jet was meant to bring in new customers, Walmart's online grocery service appears to have been more successful on that front.

In the past few years, Walmart has gone from being a brick-and-mortar retailer with an online business that was mostly an afterthought to becoming an omnichannel retailer that can legitimately compete with Amazon on convenience without sacrificing its low prices. The Jet acquisition planted the seeds and brought on the necessary leadership, even if Jet itself has been a disappointment.

While this Jet reorganization is not great news for Walmart, it doesn't change the long-term story. Walmart has made strides in e-commerce since the Jet acquisition, and it's perhaps the best-positioned traditional retailer to give Amazon a run for its money.

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