Victor, a very smart move by Wal-Mart. I like this. Wal-Mart can concentrate on its core business while it allows the e-tail side autonomy.
The noose is tightening around Amzn's neck.
>Staff Reporters of THE WALL STREET JOURNAL
Wal-Mart Stores Inc. will set up a separate company for its Web site with plans to go public, a sign that the world's largest retailer needs help in retailing's new world.
Wal-Mart.com Inc., to be based in Palo Alto, Calif., will be jointly owned by Wal-Mart and Accel Partners, a top Silicon Valley venture-capital firm. Accel will look to hire a chief executive officer and other senior managers for the venture, the companies said. While Wal-Mart maintains a majority interest in the venture, Accel and senior managers all will have stakes.
Wal-Mart Revamps Online Store Before Alliance With AOL Begins (Jan. 3)
While neither Wal-Mart nor Accel would disclose their initial investments in the new company, people close to the situation said that both companies will make cash investments that total between $50 million and $100 million. Wal-Mart is on track to pass $165 billion in sales this fiscal year ending Jan. 31, of which its Web site contributes an immaterial level. But setting up a separate company for Wal-Mart.com could allow it to go public soon, and an offering would give the new venture the ability to use stock as currency for acquisitions.
Lee Scott, Wal-Mart vice chairman and chief operating officer, said the deal was more "human-capital driven" than financial, promising Wal-Mart wouldn't overly meddle in management and "wouldn't be defensive in our approach."
Indeed, Wal-Mart's unexpected move makes it more likely to attract the top-flight talent it needs to compete with Web powerhouses such as Amazon.com Inc. Most such executives are looking for the huge financial returns that come from holding large stock options in online startups. In addition, moving to Wal-Mart's headquarters in rural Bentonville, Ark., wouldn't be a terribly attractive proposition.
Wal-Mart executives, while noting that their sprawling supercenters are the company's main growth engine, have said its Web site has the potential to change online retailing, or close "the digital divide" by bringing many people online for the first time. About 100 million people shop at a Wal-Mart store each week, many of whom don't have Internet access.
The new venture, which Wal-Mart and Accel executives say they began discussing in the fall, comes at a surprising time. Wal-Mart, which has had a minimal presence online since July 1996, relaunched its Web site just six days ago, after building up that site since the spring. The new venture will likely replace the team that has worked to relaunch the Web site that includes airline, hotel and rental-car booking as well as everything from shampoo to clothing to lawn mowers.
By forming a separate company for its site, though, Wal-Mart could also be reserving its core management and focus for its nearly 4,000 stores. The company, which operates in just nine foreign countries, is expected to work hard on overseas development, particularly in Europe.
Wal-Mart follows rival Kmart Corp., which recently formed its own online-retail unit, called Bluelight.com. That venture is a partnership with another major Silicon Valley firm, Softbank Capital Ventures.
While both Wal-Mart and Accel executives say they are well-matched culturally, and it will be easy to work together, some highly touted alliances between venture capitalists and retailers haven't worked out. Toys "R" Us Inc. abandoned plans to separate its online unit in a deal it had struck with Benchmark Capital, another large Silicon Valley firm.
Wal-Mart can be a tricky partner. It has a history of teaming up to learn a new business before flying solo once it has experience. For example, it leased space in its stores to McDonald's Corp. to run restaurants and then, in 1998, decided to stop opening new McDonald's so it could open its own grills.
Accel and its managing partner James Breyer, who struck the Wal-Mart deal and will sit on Wal-Mart.com's board, could give the huge discount company access to some of the Valley's top players as well as link it with other Internet ventures that Accel backs. Some of the more-successful and better-known ventures that Accel has funded include RealNetworks Inc., Seattle, which is the leading player in delivering audio and video on the Internet.
Still, Wal-Mart.com's most potent foe is likely to remain Amazon, also based in Seattle, which has increased its range of merchandise categories well beyond its beginnings in the book business. Wal-Mart, however, has said its stores and ability to meld online with traditional shopping give it an edge. To further that, it recently signed a wide-ranging marketing deal with America Online Inc. that includes the creation of an inexpensive co-branded Internet-access service. Mr. Scott said some of its relationship with AOL would move with the new online company.
"We truly believe we can innovate in a very radical fashion in both the online and off-line worlds," Accel's Mr. Breyer said. |
