The investors in Jet.com have to be elated. I seriously doubt that they could have become a serious threat to Amazon. It will be interesting to see how much leeway Wal-Mart gives to Marc Lore.
Walmart’s Three-Billion-Dollar Hire
By Vauhini Vara
The New Yorker
August 12, 2016
Marc Lore promised to run Jet.com as a worker-friendly place. So how will the company fare now that it’s being bought by Walmart? Credit PHOTOGRAPH BY SHIN WOONG-JAE / WASHINGTON POST / GETTY
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Last year, an entrepreneur named Marc Lore announced that he was going to get people to do their online shopping on a new Web site he had created, Jet.com, instead of on Amazon. It was a bold claim—even Walmart, the world’s biggest retailer by far, hadn’t managed to touch Amazon when it came to online retail—but people took Lore seriously because he had a track record. Earlier, he’d co-founded Diapers.com, sold it reluctantly to Amazon for more than five hundred million dollars, and gone on to work at Amazon; he knew more than most people about not only how to compete with Amazon but also what went on inside of that secretive and enormously successful corporation. Lore was able to raise a huge sum of venture capital to fund his project; Bloomberg Businessweek put him on its cover, with the headline “Amazon Bought This Man’s Company. Now He’s Coming for Them.”
As I wrote at the time, part of Lore’s plan involved undercutting Amazon’s prices. People go to Amazon not only to find good deals but also—maybe even primarily—because the site is so easy to use. Lore claimed he could beat other retailers’ prices by offering discounts, for example, when people bought multiple items or used a debit card instead of a credit card. But it seemed just as important to Lore to frame Jet as a decidedly non-Amazonian employer. Where Amazon had a reputation for being hard on employees—later that year, the Times would publish an investigative article that described a “bruising” culture that drove employees to tears—Lore promised a gentler workplace, run with transparency and free of non-compete agreements that restrict where employees can work after leaving. Lore himself wouldn’t have a desk; between meetings, he’d just wander around. He also contrasted Jet with a longer-established retail villain known for its stinginess with employees. “If someone is unhappy here and doesn’t see an opportunity for growth, OK, good luck, go to Wal-Mart,” he told Businessweek. “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.”
And then, this week, Walmart announced plans to acquire Jet for more than three billion dollars and to retain Lore, who will run all of Walmart’s online operations, including Jet. Lore may not have been unhappy at Jet—he has generally earned positive reviews as C.E.O., and he hired several high-profile people, including E-Trade’s chief marketing officer and a former human-resources director at Amazon—but the company’s opportunities for growth, as an independent entity, seemed challenged. Jet was investing enormous sums to attract new customers, with some success, but it was unclear how long its funders would be willing to keep infusing it with cash.
In acquiring Jet, Walmart gets Lore’s approach to pricing and the technology behind it. But in paying more than three billion dollars—making this the largest e-commerce acquisition ever—Walmart must want more than that. And what it gets is Jet’s employees, including, most crucially, Lore himself. According to Recode, Lore’s deal with Walmart requires him to stay on at the company for at least five years in order to earn a promised payout of up to a billion dollars, a longer time commitment than the typical two or three years and one that emphasizes how important Lore is to Walmart’s e-commerce future. Doug McMillon, the C.E.O. of Walmart, said that the acquisition represented a “jolt of entrepreneurial spirit being injected into Walmart.”
The question is whether that spirit will last, and, if so, for how long—even with Lore at the helm. In any acquisition of this size, questions invariably emerge about what business-school professors call “integration”—the acquirer’s ability to absorb another company without losing whatever it was that made the target company successful. Corporate culture, though nebulous and ill-defined as a concept, is seen as central to whether deals work or not. Aon Hewitt, the consulting firm, found in a 2011 survey that trouble with cultural integration was the second-most-cited reason that mergers and acquisitions failed.
Jet was able to use its generous venture-capital funding, and a lack of interest in becoming immediately profitable, to be generous to its employees; Walmart, on the other hand, is known for being stingy in the interest of generating profits. When it expanded its Silicon Valley presence to try to better compete for tech employees, an executive—the person Lore will be replacing as head of Walmart’s e-commerce operations— told the Times, “We are of Walmart and Silicon Valley at the same time. So we have a great cafeteria, but we don’t pay for all your food.” One can imagine the difficulties that could emerge in recruiting and keeping talented employees.
It’s even possible that cultural discord could make hardworking, entrepreneurial people work less hard. Leonce Bargeron, a professor at the University of Kentucky who has studied the relationship between corporate culture and mergers, told me that the acquisition could alter how former Jet employees do their jobs, as they move from a small startup where individuals are empowered to make decisions to a huge and bureaucratic corporation. “Here you’re used to this environment of collaboration and trusting that you’re going to get credit for what you do, and you’re thrown into the Walmart setting,” he said. “Where I can see this going wrong is if people think, I’m not going to get credit for what I do, so I’m not going to work as hard.”
I asked a Walmart spokesman, Randy Hargrove, about the challenge of integrating Walmart’s and Jet’s very different cultures. Had the companies come to any conclusions, for example, about benefits for employees of Jet and of Walmart’s e-commerce division in general? “We know there are issues we’re going to have to solve for,” Hargrove acknowledged. He added, “They’re doing a lot of things very well and moving very quickly, and that entrepreneurial spirit they have, we want them to keep that.” But he said that the companies had yet to work out many specifics, beyond retaining Lore and having Jet continue to operate independently.
Keeping Lore around may be central to making the most out of the acquisition. His commitment to staying at Walmart is meaningful, but its significance depends on whether Walmart’s e-commerce success will matter to him as much as Jet’s success as an independent company did. Lore has, of course, proclaimed his enthusiasm for the deal, calling it a “historic, once-in-a-lifetime opportunity.” Still, his enthusiasm for running Diapers.com as a startup, and his annoyance over the inevitable constraints of working for Amazon after its acquisition, don’t seem to bode well for Walmart, a far larger, more bureaucratic, and, by some measures, less employee-friendly place.
There is one aspect of Lore’s ethos, of course, that resonates with Walmart’s—its focus on the most cost-conscious of customers. It’s easy to forget that most shopping still takes place at brick-and-mortar stores; those who shop online tend to be wealthier, and therefore perhaps less aggressive about bargain-hunting, than those who don’t. Lore’s theory, all along, has been that there are a lot of people who don’t currently do much shopping online but invariably will in the future—and that those people, less well-off than current online shoppers, will be in search of a good bargain. Lore might not have thought of Jet, early on, as being much like Walmart, and he might not have thought of himself as looking much like a Walmart executive; the customers Jet wants, though, sure look a lot like Walmart shoppers.
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