Personal Finance

Jet.com Was Just the Start of Wal-Mart's E-Commerce Acquisitions

Jet

Image source: Jet.

Jet.com has helped reinvigorate Wal-Mart 's(NYSE: WMT) online sales growth, but the megaretailer is far from done transforming its online sales operations. Wal-Mart is kicking off the year with the acquisition of ShoeBuy.com, an online shoe retailer that competes with Amazon 's(NASDAQ: AMZN) Zappos. The acquisition reportedly cost $70 million.

More telling are comments from Wal-Mart's head of e-commerce, Marc Lore, (former CEO of Jet.com) who said Jet and Wal-Mart will likely pursue more acquisitions like ShoeBuy. In particular, he pointed to "categories where they are long-tail, high-margin products and harder-to-crack brands." Jet.com's selection still pales in comparison to Amazon.com's, so improving inventory through acquisition is a quick fix for the problem.

Raiding the closet

Apparel is the largest online sales category in the United States. It shouldn't be a huge surprise that Amazon is the largest online seller of clothing in the country -- just like nearly every other category. What's more, analysts project Amazon's share of the U.S. apparel market to triple from 2015 to 2020.

While Wal-Mart sells a good amount of clothing in its brick-and-mortar stores, it doesn't crack the top 10 online apparel retailers. Thus, the ShoeBuy acquisition is a perfect fit to launch sales of the "long-tail, high-margin" categories Wal-Mart is lacking.

Before Amazon bought Zappos in 2009, its apparel business was minimal. It started adding T-shirts, jeans, and other basics to its product catalog, and it rapidly grew. Amazon sold $16.3 billion in clothing and accessories in 2015, according to Internet Retailer. With the introduction of its own clothing lines, it seems like only a matter of time before Amazon surpasses Macy's as the largest overall apparel retailer in the country.

While ShoeBuy isn't nearly as large as Zappos -- $315 million in revenue versus $1 billion for Zappos in 2009 -- it still gives Wal-Mart a foot in the door to more robust clothing sales sales.

A big budget for improvements and acquisitions

Wal-Mart plans on spending $1.1 billion on its e-commerce operations in fiscal 2018, up from $900 million this year. But Wal-Mart developed that plan before it acquired Jet.com and put Marc Lore in charge of growing its e-commerce business. If Lore wants to make more acquisitions instead of developing things internally, Wal-Mart has the capital to move some money around and make it work.

Consider that ShoeBuy and its $315 million in sales only cost $70 million to acquire, Wal-Mart has room to acquire several more similarly sized companies every year. By incorporating the smaller e-tailer's inventory, retail partnerships, and operations with Wal-Mart's giant infrastructure, the company should be able to boost the bottom lines of the smaller companies it plans to snatch up.

If Wal-Mart stands a chance at catching up with Amazon, it'll need to do so through both acquisitions and organic growth. Amazon is still one of the fastest-growing online retailers despite its massive sales base. Amazon's retail sales increased 27% through the first nine months of 2016. By comparison, Wal-Mart's online sales increased just 21% in the third quarter after reporting growth of just 7% and 12% in the first and second quarters, respectively.

Acquisitions like ShoeBuy to penetrate the vast apparel market or other small retailers with a small foothold in a big retail category should fit well into Wal-Mart's larger online platforms. But Wal-Mart will have to keep spending in order to grow.

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Adam Levy owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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