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Business Management

Walmart tries for a rare transformation with Jet purchase

Persistent reports suggest that Walmart, the world’s largest retailer, will buy Jet, the much-hyped and richly funded startup that is attempting to best Amazon via a sophisticated bulk buying approach. Recode says the deal will be formally announced today with the package worth about $3bn.

Jet has an interesting model. Buyers pay upfront to join what is effectively a smart price club with algorithms to help the firm make a profit in the long term once customers keep coming back for more having been enticed by cheap deals. But Walmart-Jet is a business deal that has warning signs all over it.

Why? There are two main reasons, one practical and one cultural.

The practical issue is that Jet remains unproven. It has succeeded in bringing in lots of venture capital but the company is a bold gamble and there are no guarantees that it will have the legs to succeed, even with the might of Walmart on its side. Remember that for many years Amazon made huge losses and was weighed down by the enormous costs involved in disrupting retail and establishing successful systems and branding. Even now it is emerging that it is the Amazon Web Services wing that is more likely to generate profits in perpetuity than the e-commerce core. Nobody can say with confidence that Jet has the right model to win.

The softer issue is down to company culture. Mature businesses that can reform themselves radically are few and far between. Too often they are bogged down by the systems and thinking that made them successful in the first place. Walmart has done little so far to suggest it can win online and transfer its legacy in bricks and mortar to the very different virtual world.

How many companies have successfully reinvented themselves and taken on board new ideas and strategies? Apple did it, certainly, but how many others created the storied turnarounds that make business lore? IBM did it under Lou Gerstner with cost cutting and a switch in emphasis from hardware to software. Enron appeared to do it but that turned out to be a sham. Change is tough.

To be fair, Walmart appears to be at least attempting something significant. It has scale aplenty. The company remains vast even if its online operations are dwarfed by the usurping Amazon: only the US Department of Defense and the Chinese army hire more people. Also, reports say that Jet CEO Marc Lore will take charge of all Walmart’s e-commerce push. Lore previously sold a company to Amazon.com and worked there before he founded Jet. If anybody can pull off a root-and-branch transformation it might be him. But will he make his voice heard at the top table and is Walmart too mired in what made it big to shed its skin?

Here once again is the Innovator’s Dilemma of whether to stick or twist. The odds on success are long and with Jet, Walmart is flying in the face of history.  

 

Also read:

Can Jet out-Amazon Amazon?

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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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