Walmart shopping carts
After a week of rumors, Walmart has confirmed that it is indeed buying Jet.com, an e-commerce site headquartered in Hoboken, N.J, that launched in 2014 with high hopes of competing with Amazon.

That never happened — and the site has been unprofitable since its launch.

On paper, though, it looks damn good.

There is Jet.com's unique price model and underlying technology, not to mention the pedigree of its CEO. Briefly, Jet.com's model adjusts prices downward the more people add to their carts. It can do this because it sources its products from all over the country and bases the prices on the customer's location from the source. Thus, Jet.com is able to both save on transportation costs and maximize the cart's total sales. And because the site was built to adjust the prices as the products are added into or subtracted from the cart, it is by necessity lightning fast.

Then there is the CEO Marc Lore. Before founding Jet.com, Lore co-founded Quidsi, the parent company of Diapers.com and Soap.com, which was sold to Amazon for $545 million in 2011. He spent two years at Amazon before moving on to launch Jet.com.

So while Jet.com may have been unprofitable — and many start ups are — it clearly was valuable enough for Walmart to acquire for the tidy sum of $3.3 billion, $3 billion of which will be in cash, to augment its own online sales operations.

Now all that is left for Walmart to do is slip Jet.com into its already extensive e-commerce operations and finally begin to make some headway in this area. Right? Unfortunately, not quite.

An Uphill Battle

For starters, with any merger or acquisition there is the more-than-distinct prospect that its value will ultimately not be realized, usually because of a culture clash between the two companies. If Walmart and Jet.com — an immense corporate retailer and a fledgling tech start up — are able to make this marriage work it will surely be an M&A studied for years to come.

It is also noteworthy that Jet.com's customer base does not align with Walmart's customers, which could be a point in the deal's favor — or a reason why it was unable to meld its practices with Walmart. Jet.com buyers are more likely than other online buyers to have incomes greater than $150,000 a year, according to NPD Checkout Tracking data.

It also reports that only a fifth of Jet.com buyers have purchased from Walmart.com in the most recent 6-month period and that Jet.com buyers spent more of their online dollars on Baby Products, Pet Supplies, Home & Kitchen, Tools & Home Improvement and Health & Beauty compared to non-Jet.com buyers. As it happens, Marshal Cohen, chief industry analyst at The NPD Group, sees this mismatch as a plus. The Jet.com acquisition puts Walmart in the bigger game of online retailing of the future and it brings consumers from outside traditional retail, he said.  "Omni channel moves to omni presence."

Too Slow

But perhaps the biggest headwind facing a successfully combined Walmart.com and Jet.com is the fact that Walmart hasn’t really been able to succeed at e-commerce to date despite investing millions of dollars on cutting edge start ups via WalmartLabs.  It has, over the years, acquired OneRiotKosmixAdchemy  and OneOps to name just a few examples.

And yet for its first quarter of fiscal 2017, which it released in May 2016, CEO Doug McMillon reported that on a constant currency basis, e-commerce sales grew 7%. That was too slow, he flat out said in the earnings call.

"We can see progress against several of the necessary capabilities we need to win in e-commerce but we are still working on a few others. We need them all to come together to see stronger growth," he said.

So what exactly is the problem?

Two Completely Different Mindsets

Joel Citron, director of Advertising Technology at Ai Media Group, a New York City-based digital strategy company, chalks it up to a different mindset between a brick-and-mortar company and an online retailer. "They have very different ways of engaging with the customer," he said.

Now here is where Jet.com can clearly help Walmart — it continuously engages with the customer, far more so than Amazon. Every time a customer puts an item into his cart, the site engages with him, Citron told CMSWire. "It will tell you, for example, 'all you need is to buy another $10 to get your total price down to $75.'"

Is the secret sauce that Walmart.com has been missing? Possibly, but Citron also agrees that it is unusual for a retailer to have such a huge chunk of the brick-and-mortar sales and such as small percentage of online sales.

"Maybe Walmart won't be able to successfully integrate Jet.com in the end," he said.

But, then maybe it can. Besides the pricing engine, which automatically builds in engagement as well as maximized cart sales, that $3.3 billion purchase price includes Lore's expertise. Lore will be staying on at Walmart.com for two years as part of the deal.  "He has a great reputation plus those two years at Amazon," Citron said. "If anyone can turn Walmart.com around it is Lore."