Why Walmart’s $3B Purchase of Jet Means You Might Want to Cancel Amazon Prime

AP

Walmart, the largest retailer in the worldannounced Monday morning that it would be acquiring e-commerce company Jet for about $3 billion. 

Though Jet has been around for only two years — and available nationwide just since last July — it has caught on quickly with shoppers: Sales have grown 168% since last summer, and the company sold about $1 billion in merchandise in its first year.

That success has clear appeal for Walmart, which has seen its online sales growth decrease for five straight quarters.

Rival retail company Amazon still reigns as the king of e-commerce with nearly $100 billion in 2015 online sales, compared to Walmart's $14 billion. But the new Jet deal could spell trouble for Amazon for two big reasons. 

The first is Jet's CEO, Mark Lore, who stands to make about $750 million from the deal and will help lead Walmart's online team. Crucially, Lore has better knowledge than most as to how Amazon does business: He sold his last e-commerce company, Quidsi, to Amazon for $545 million and continued to work for the company for two years before founding Jet.

Jet CEO Marc Lore sold his last company to Amazon and knows the e-commerce space well. Source: Seth Wenig/AP
Jet CEO Marc Lore sold his last company to Amazon and knows the e-commerce space well.  Seth Wenig/AP

The second reason the Jet deal could hurt Amazon is price competition.

Studies have found that Jet offers cheaper prices than Amazon for the same items across many categories, including electronics and household goods, though Amazon offers a wider variety of products. 

By joining forces with Walmart, Jet could now pose a more serious threat to Amazon, which has plenty to lose: More than 70% of upper-income households — and half of all U.S. households overall — subscribe to Amazon Prime. 

Amazon Prime memberships cost $99 a year, while using Jet is free; but, as Prime enthusiasts will point out, Amazon's service comes with a slew of other perks like free two-day shipping, unlimited photo storage and loads of streaming entertainment. You can't watch the latest season of Transparent on Jet.com, after all.

Still, if all you're after is the cheapest online retail experience, it's harder to defend Amazon: Jet offers free shipping on all of its purchases over $35, and it's prices on everyday items like paper towels and cheap groceries undercut Amazon's and those of other players like Costco by about 5%

According to calculations by Money, using Jet instead of Amazon Prime to buy household essentials could save consumers up to $500 a year — though that figure could shrink a bit after factoring in Amazon's various promotion and coupon offerings.

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