Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Walmart's making an exception to its "Everyday Low Prices" rule.

The world's biggest retailer announced on Monday it was buying upstart online retailer Jet.com for $3 billion in cash, plus $300 million in stock over five years -- topping QVC's $2.4 billion purchase of Zulilly.com last year as the largest-ever acquisition of an e-commerce company.

Grounded
Walmart's shares are roughly flat on the news of its $3.3 billion acquisition of Jet.com
Source: Bloomberg
Intraday times are displayed in ET.

The deal marks a major shift in the way Walmart has approached its online operations. In the past, it has preferred to build out its own capabilities rather than pursuing growth through big acquisitions. Walmart is betting on Jet's technology to accelerate e-commerce growth, while using Walmart's heft and purchasing power to help scale Jet. It will keep the companies separate.

As Shira Ovide and I wrote last week, $3.3 billion is a lot to pay for Jet, a company long on hype but short on profits. Walmart said the value of stuff sold through Jet.com over 12 months is projected to be $1 billion. But as Gadfly has pointed out, the metric used to come up with that number is flawed and doesn't provide an accurate picture of revenue. 

The one thing about the deal that does make sense, however, is that it will overhaul the leadership at Walmart's e-commerce business.

Through the acquisition, Walmart will get Jet co-founder Marc Lore to lead its global e-commerce business, which will push aside Neil Ashe, the current e-commerce head. Walmart CEO Doug McMillon thanked Ashe for his service Monday, explaining the shakeup comes at a natural inflection point for the business. 

Walmart's e-commerce sales growth has stalled, with online sales recently increasing at about half the rate of the overall market.  

Clicking Down
Despite Walmart sinking billions into building e-commerce operations, online sales growth is slowing
Source: Bloomberg Intelligence

Ashe made his name as a deal-maker at CBS Interactive, but at Walmart has stuck to scooping up smaller digital startups. On his watch, Walmart spent billions on new e-commerce infrastructure, including distribution centers and international expansion. But it wasn't enough to fully shift the company's priorities, which are weighted to its 12,000 brick-and-mortar stores around the world. 

When Doug McMillon took over as Walmart CEO at the end of 2013, he emphasized e-commerce as an area to help Walmart keep its place as a retail leader amid fast-changing consumer shopping preferences. When a lower-than-expected profit outlook last October prompted Walmart's largest stock drop in 27 years, McMillon tried to reassure investors by urging them to start looking at Walmart as growth company. Like Amazon, he said, Walmart was spending for the future. 

And while McMillon replaced the heads of almost every other Walmart division, including its U.S. business, international operations, and human resources, he left Ashe as head of e-commerce. Despite the lagging online sales performance, Ashe raked in more than $30 million in total compensation over three years. Meanwhile, Amazon marched ahead, surpassing $100 billion in revenue and successfully expanding its Prime Membership program. 

It's time for a new direction. Tellingly, terms of the length of Marc Lore's stay at Walmart were a sticking point for the entire Jet deal, according to an account in Bloomberg News. Walmart already chased and lost Lore once, in 2010, when Amazon topped it with a $540 million bid to buy another Lore-founded company, Diapers.com parent Quidsi. 

Many of the founders at the e-commerce companies Walmart has bought moved on shortly after being acquired, finding their entrepreneurial spirit crushed by Walmart's corporate bureaucracy -- an issue Lore highlighted in a January interview with Bloomberg

“If someone is unhappy here and doesn’t see an opportunity for growth, OK, good luck, go to Wal-Mart,” he said. “I want to prove to myself that a different kind of culture can work and that you don’t have to be like that to be successful.”

As it turns out, it looks like what Recode estimated to be $750 million from Walmart has changed Lore's mind.

While we don't know how long Lore will stay on -- he stuck around for two years at Amazon -- the five years it will take Walmart to pay Jet $300 million in stock hints at Walmart's expectations. If that's long enough to turn around Walmart's flagging online sales and give it a fighting chance to take on Amazon, then it might actually make that $3 billion price tag seem worth it.

This story was updated with Walmart's confirmation of Marc Lore's new position.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net