As the press focuses on Wal-Mart Stores Inc.’s (NYSE: WMT) possible buyout of e-commerce business Jet.com to help the world’s largest retailer’s own online efforts, Wal-Mart has seen its stock price rise of 20% this year. It is among the very top performers in the Dow Jones Industrial Average. Its e-commerce failure and stock market success seem remarkably disjointed.
Jet.com claims it competes with Amazon.com Inc. (NASDAQ: AMZN). Nothing could be further from the truth. Jet.com almost certainly would have to raise more money to increase its business much.
However, it is reasonable for Wal-Mart to consider a buyout of Jet.com. Its own online revenue is estimated at $14 billion, out of its $428 billion in sales. At that size, it does not have any chance to catch Amazon, which has an annual revenue run rate of $100 billion, although some of that is from its Amazon Web Services (AWS)Â cloud business.
The fact of the matter is that the traditional retail business is still a good one, at least for Wal-Mart. Its annual revenue was $447 billion in its fiscal 2012. In its most recently reported year, the number has risen to $483 billion. The $36 billion increase is huge in an industry in which companies like Macy’s and J.C. Penney are falling apart.
No one would argue that Wal-Mart needs to double its online revenue. And no one would argue that it has not been aggressive enough as it tries to increase sales in the business. However, with its balance sheet and cash flow, Wal-Mart can do radical things, like extend free shipping to all its e-commerce sold items, or buy a streaming video company like Hulu to compete with Amazon Prime. Wal-Mart still has the capacity to transform its online business. What it needs to do is make the decision.
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