How would you like to go up against a world-champion heavyweight boxer? How would you like to do it twice?
Marc Lore has. Actually, he went up against the champion, went to work for them for over two years, and is now in the process of going up against them again.
The champion I’m talking about is Amazon. Lore has went up against them twice in a little over a decade; first as founder of Quidsi, parent company of Diapers.com, and second as founder of Jet.com. Since Jet’s acquisition by Walmart in 2016, Lore is now continuing his battle against Amazon as President and CEO of Walmart eCommerce US.
So what makes somebody decide to fight a seemingly impossible fight? To understand that, you must look at Lore’s history with the company, starting in 2005.
Diapers.com: The Beginning
Lore and his co-founder, Vinit Bharara, started Diapers.com in 2005, originally going by the name 1800DIAPERS. The goal of the company was to build a website for Mom, a sort-of online version of Baby’s-R-Us. Rather than trying to sell high-margin goods that were popular internet sales items at the time, Diapers.com focused on low-margin consumables like “the diapers, the wipes, the formula.” They focused on building the back-end logistics of the company first, rather than focusing on design and marketing as their predecessors tended to do (Pets.com). This meant figuring out packaging and shipping and focusing on customer service from the beginning.
Diapers.com was a subsidiary of Quidsi, a startup that also owned Soap.com and Wag.com. Within five years of opening, the company was worth over $300 million. When they initially opened, Quidsi had an operating margin of 4.6%; in 2009, this margin was up in the teens. In the same year, the company was selling $89 million in diapers each year.
Amazon Comes to Town
Everything was going great for Diapers.com and Lore – that was until Amazon showed up. In 2009, “Amazon sent a senior vice president to have lunch with the founders,” who warned them that Amazon was thinking about entering the diaper industry after seeing the success of Diapers.com. The message was clear: you are going to sell your company to us.
When Lore and Bharara rejected Amazon’s offer, diaper prices on Amazon began to drop upwards of 30 percent – a pricing bot automatically lowered Amazon’s sales price based on the price on Diapers.com. In 2010, the morning of a meeting between Lore and Amazon, Amazon Mom was launched, focusing specifically on baby products.
Eventually, the pressure from Amazon got too great and Diapers.com had to decide whether to sell to Amazon or Walmart. When Amazon heard of Diapers.com getting bids from both companies, they told the Diapers.com executive team that if they did not sell to Amazon, they would continue to drive prices down until Diapers.com failed. On November 8, 2010, Quidsi sold to Amazon for $545 million.
Working for the Man
For the next two years and five months, Lore worked at Amazon. On his experience there, he has this to say:
“There were some things at Amazon that I didn’t like, and didn’t want to replicate in my future companies. I think transparency is lacking at a lot of companies.”
Jet.com: A New Venture
A year and a half after leaving Amazon, Lore began work on his newest venture, Jet.com. The idea behind this company was simple: it a world where companies were competing on speed, Jet.com would focus on price, what Lore believes is the next wave in eCommerce trends. Jet.com used a “SmartCart,” which used an algorthim to decrease your per-cost item the more you bought. In their first round of fundraising, Jet.com raised $80 million, which was followed up by a second round of fundraising in 2015 which gathered $140 million.
When they originally launched on July 21, 2015, you needed to be a member to use Jet.com; the fee was $50. In October of 2015, Jet eliminated this restriction and opened the website to everyone. Reviews of the website were mixed but they did exactly what Lore said they would do: lower prices (~9 percent lower than Amazon) but slower shipping times. In November 2015, Jet served their one millionth customer and closed another round of financing which gave their company a valuation of $1.5 Billion.
Walmart Comes to Town
This was the message that Lore went to Walmart with. Yes, he was working on convincing Walmart to take this deal, a huge shift from the last time a company of his was acquired. Lore knew of the difficulties that Walmart was having with their eCommerce business and recognized that Jet’s system would be able to revolutionize the way they were doing business at Walmart, giving them a fighting chance against Amazon.
On August 8, 2016 Walmart announced that they would be acquiring Jet.com for $3.3 Billion – not bad for a company that was only fifteen months old. Less than a year later, Amazon announced that they would be shutting down Lore’s old company, Quidsi, which had been their fourth-largest acquisition up until that point. Although Amazon announced they were closing the company because “it hadn’t been able to turn the business profitable,” many believe that their real motivation was Lore’s decision to sell Jet to Walmart.
Working for the (Other) Man
Lore now serves as President and CEO of Walmart eCommerce US. His task is huge: expand Walmart’s online presence and dethrone Amazon as the largest e-retailer. Under Lore, Walmart has continued to purchase their way into the eCommerce sector, acquiring companies such as “ShoeBuy, Bonobos, ModCloth, Moosejaw and delivery company Parcel.” So far, Lore’s strategy has been to keep these brands separate from the Walmart brand with the goal of adding their products to the long-tail of products available on Jet.com and Walmart.com.
He is hoping to be able to leverage all of Walmart’s assets in this competition with Amazon, taking advantage of something Amazon doesn’t have many of: physical locations (although Whole Foods did add ~460 locations). Walmart has 4,600 stores within 10 miles of 90 percent of the US population, giving Walmart an advantage when it comes to hybrid online/offline sales.
So, what does the future hold for Lore and Walmart? Only time will let us see who was more successful in the eCommerce arms race. One thing is for certain though, Amazon was not expecting such a fight when they tried to buy a new diaper company a decade ago.