On August 9, 2016, Doug McMillon appeared at Jet’s startup-chic Hoboken headquarters looking more the part of an e-commerce startup CEO than the chief executive of the country’s largest employer. Both McMillon and Marc Lore wore blazers, but McMillon paired his with jeans, while Lore opted for dress pants.
McMillon had traveled to New Jersey to announce Walmart’s plans to acquire Jet and to appear on CNBC alongside Lore in their first television interview together.1 While viewers might not have noticed the style swap, it was a small but telling sign to some insiders of the respect each leader had for the other’s background and expertise. The old-school retail titan and new-school e-commerce impresario were going to make this marriage work.
McMillon and Chairman Greg Penner had promised Lore and his executive team the keys to Walmart’s US e-commerce kingdom. And from the time the deal closed in September of that same year, the new royalty didn’t waste any time shaking things up.
“They gave us carte blanche,” Jet.com chief revenue officer Scott Hilton, who would also take over as Walmart.com’s chief revenue officer, told me.
Lore instantly became a regular at New Jersey’s Teterboro Airport, where he would board weekly flights on a Walmart private jet to the Bentonville home office to consult, strategize, and try to build consensus among the rest of Walmart’s leadership.
His Jet cofounder Nate Faust became a regular on United Airlines flights out of Newark Airport—his role didn’t come with regular access to Walmart’s private fleet of jets—but his destination was San Bruno, California, where Walmart’s existing e-commerce operation was based. There his first task was to move whatever mountains he needed to get Walmart’s e-commerce division and warehouses ready for the first new launch that Lore and team would unveil just four months later: free two-day shipping on orders of $35 or more.
Just a few months earlier, before the Jet acquisition, Walmart had announced the national rollout of a two-day shipping program that required customers to pay $49 a year for the perk. No more. This was a new day with new leaders. It was a Jet takeover. The mission was rapid growth—and, like in the early days of Jet, Lore didn’t want a membership fee standing in the way.
In a statement at the time, Lore called the new offering “table stakes.” Some long-timers in the physical retail division, however, knew Lore’s reputation for money-losing growth and heavy spending, and felt that this “table stakes” example was likely just the beginning of a string of costly moves designed to goose online sales.
“Everyone wanted to throw up,” a former executive told me.
They were right. Under Lore, Walmart dramatically increased its advertising spending to fuel top-line sales growth and began an acquisition spree. That same month, Walmart announced the purchase of ShoeBuy, the operator of a Web 1.0 shopping site. The next month, Lore was at it again, with Walmart announcing the acquisition of Moosejaw, a retailer with ten stores and an online shopping site first launched in the early web days that was known for a wide assortment of outdoor gear and apparel.
The streak continued in March 2017 with the acquisition of ModCloth, one of the first movers in the era of venture-backed fashion brands that were native to e-commerce rather than physical retail. ModCloth sold both its own brands and others and had developed something of a cult following for its focus on vintage-inspired women’s clothing years earlier. But in late 2016, amid a turnaround effort, its CEO had trouble raising additional venture capital as the company stared down debt payments coming due. Jet and Walmart were there with open arms and an appetite for another distressed asset.
The e-commerce shake-up entailed more than just acquisitions, though. That same month, Lore unveiled his plans for an incubation arm inside Walmart that would spin up its own startup companies. Some longtime Walmart executives rolled their eyes at the idea, but it was atop the list of must-dos for Lore. It would be called Store No. 8—an homage to Walmart’s eighth store, based in Morrilton, Arkansas, which Sam Walton used as a testing canvas for new ideas. Lore hired Jenny Fleiss, the Rent the Runway cofounder, that spring to lead the first new internal startup: a text-message-based concierge service called Jetblack that would eventually launch to a group of wealthy New York City moms. There was officially a new Walmart on the block.
The beat of e-commerce announcements was becoming steady. Some longtime colleagues had questioned whether Lore would quickly tire of big-company bureaucracy. But the rapid pace of announcements seemed to energize him instead. He was Walmart’s biggest cheerleader, both internally at town hall events and externally at one industry conference after another.
It didn’t hurt that Lore had quite the financial incentive to be excited about the work. Walmart had agreed to pay him $477 million over five years for his ownership stake in Jet. And that was just the cash. Lore was also awarded more than 3.5 million Walmart restricted stock units to be paid out over five years, but with 30 percent of that total backloaded into year five. Those units were worth more than $256 million at the time of the acquisition.2 While the sale of Quidsi to Amazon had made Lore a fortune, the sale of Jet to Walmart would catapult his wealth to a whole new stratosphere. (Of course, while Walmart was doling out this compensation bonanza for Lore, the average hourly rate for full-time company workers was just $13.38, or around $27,830 annually for those who worked forty hours a week.)
Lore and his teams also looked for ways to take advantage of Walmart’s existing store footprint—an advantage that Amazon executives had long feared. In April 2017, Walmart.com began offering a 5 percent discount on a selection of ten thousand items if customers agreed to pick them up at a store instead of selecting delivery to their home—in what was a new twist on the old Site to Store service.3 These orders would be more profitable for Walmart.com since they didn’t require paying a shipping carrier like FedEx to ferry the boxes to a customer’s home; Walmart trucks were already carrying goods from warehouses to their Supercenters, and these online orders would go along for the ride.
There would be some bumps, though. The selection available for discount was restricted because there was no way Walmart’s US store chief, Greg Foran, a New Zealander with sharp elbows and a dry wit, was going to allow online customers to get a better deal on merchandise found in stores than shoppers who did the shopping themselves. It would be one of the early signs of more friction to come.
Even still, the discounts served as a way to potentially beat Amazon on price and reclaim the section of consumers’ brains reserved for price perception and the retailer best at it. Not surprisingly, perhaps, the new discount option also set in motion one of the first big battles between Walmart e-commerce under Lore and Amazon, his old nemesis-turned-employer-turned-nemesis.
Amazon’s internal price-matching software regularly matched Walmart.com merchandise prices. But an internal debate erupted at Amazon over whether the matching tools should also match the discounted prices that Walmart was awarding its customers who chose the pickup option instead of at-home delivery. Should Amazon stick with its matching-all-the-time pricing philosophy and suffer heavy losses, since it still had to pay to ship the discounted item to a customer’s door? Or should it come up with a new pricing tenet to include this rare exception and not match a lower Walmart price that the rival was giving out for pickup orders?
“You don’t know how firmly you hold your convictions until you test them,” Doug Herrington, Amazon’s current CEO for its worldwide consumer business, told me years later. “And this was a good test of those. Some products actually spiraled down—some customers got the most amazing deals in the history of packaged goods during that time period.”
Herrington and other Amazon executives instructed their teams to stand firm. If Walmart was offering online shoppers the lowest price anywhere, even if it was part of a special pickup program, Amazon was going to train its spying algorithms on those prices, too. Inside Walmart, pricing teams watched the digital sparring with fascination. At times it looked like Amazon was blinking when prices got too low, either making an item in question only available to Prime members to stem the losses, or even labeling it out of stock. Walmart employees, suspecting something was up with the out-of-stock incidents, then ran tests where they would raise the price on an item if Amazon marked the same item out of stock.
Sure enough, the items would almost immediately reappear on Amazon.
“At some point, it looked like they were using ‘out of stock’ as a way to say, ‘All right, go back up with the price,’” a former Walmart executive told me.
As this battle raged, Lore was about to make another move, one that would signal a new day in Bentonville—or at least in Hoboken. In June 2017, Walmart made a $310 million deal for Bonobos, an upscale men’s fashion retailer that had started out online but utilized a network of showrooms to help customers get fitted in-person before ordering merchandise to their doors. Bonobos was run by a charismatic founder named Andy Dunn—a well-known commodity in the New York City tech scene and one of the founding fathers of the digital-native consumer brand boom. Dunn had coined the term digital-native vertical brand, or DNVB, and Lore would charge him with building out a portfolio of such brands under the Walmart umbrella, either through acquisition or incubation, where Target had outflanked Walmart for years by creating breakout brands that connected deeply with customers.
In the background, another innovation Lore had championed fiercely was being tested, and it was ruffling some feathers internally. It was a feature that allowed shoppers to more easily reorder frequently purchased goods that they usually bought in Walmart stores. Behind the scenes, that meant Walmart was using the credit or debit card numbers of their in-store shoppers to track and identify them when they shopped online. Walmart financial leaders were furious when they heard about this tracking method, and some of the e-commerce employees working on the project shared their concern.
“We always had in our mind that we are hugely violating people’s privacy,” a former employee told me. “Someone going to the Walmart store to shop has no idea how we are taking [their] data and putting it into the e-commerce side.”
But the initiative was a top priority of Lore’s from the start—it was, he thought, the entry point to getting more of Walmart’s massive in-store customer base to shop online—and so the employees working on it fell in line. Lore, for his part, could not even fathom the problem with his approach. Though the credit card data was being shared between two different shopping channels, the data remained within the same company. Did Walmart leadership really still consider the stores division and e-commerce division to be two separate companies? Regardless, why would customers look at it that way? What decade was this?
The debate made it all the way up to Walmart chief financial officer Brett Biggs, who was concerned the tracking system might violate agreements with Visa and MasterCard and cost Walmart billions, according to someone who heard his concerns. But Lore didn’t back down, and the new feature rollout went public in July 2017.4 It’s not clear how the concerns were resolved, and Walmart declined to offer specifics.
“With any project or initiative at Walmart, stakeholders are encouraged to identify and share their concerns,” Walmart spokesperson Erin Hulliberger said. “Walmart appropriately addresses concerns as they are raised.”
What was clear was that this was still the honeymoon phase of the Walmart/Jet marriage, and the new top dogs were not yet used to being told “No.”
The pace of action and change was astounding for a company like Walmart. Walmart’s management structure was historically a centralized one, and a common symptom of that was slow decision-making, as well as decisions by consensus. But that wasn’t happening now, even if things were at times sloppy behind the scenes. After the Moosejaw acquisition closed, for example, a young Jet employee was charged with training Moosejaw’s employees on Jet’s systems. The employee was given little notice and ended up slapping together a presentation the night before in a crummy hotel room in Detroit. This might not have been “move fast and break things,” but it was at times “move fast and fake things.”
Either way, in Bentonville, large swaths of the rank and file felt invigorated by the moves. It felt like the company was getting more media coverage than ever before. And, for a change, much of it was positive.
A New Narrative
Thanks to Lore, the digital dinosaur was waking from its slumber. Walmart might not have been considered a true Amazon rival yet, but it wasn’t a laughingstock in technology circles anymore, either. Talented founders and engineers who might have ignored Walmart recruiters or M&A execs just a year or two earlier were now taking offers from the company seriously.
Each move on its own might not have seemed impressive, Lore admitted to me years later. “But if you look at the sum total of all the decisions, it changed the narrative, and that brought in incredible talent,” he said. “And that was what I was trying to do.”
Doug McMillon also paid close attention to the narrative that was building both in the press and among shareholders. In the summer of 2017, some e-commerce employees were told that the CEO had been tipped off about a new Amazon delivery program that was set to launch imminently. The goal for Amazon was to take its promise of delivery convenience to the next level by allowing Amazon Prime members to opt in to get deliveries placed inside their home, to guard against porch-pirate thefts. Customers had to own or purchase a smart lock that opens without a physical key, as well as an Amazon indoor security camera that would allow for real-time monitoring of the delivery, and the delivery person, as it happened.
McMillon wasn’t going to let this juicy tip go to waste. A small group of Walmart e-commerce employees were told that McMillon wanted Walmart to beat its rival to the punch. In a matter of about six weeks, Walmart created the outlines of a similar program. On September 22, 2017, Walmart published a blog post titled “Why the Future Could Mean Delivery Straight into Your Fridge,” announcing a small pilot test of in-home delivery in Silicon Valley that would include delivery people unpacking perishable goods and placing them in a customer’s refrigerator.5 Tech blogs, which had grown accustomed to covering more innovation at Amazon than at Walmart, ate it up. McMillon would later give executives the green light to expand the pilot and turn it into a stand-alone business inside the Store No. 8 startup incubator.
By the time Amazon announced its Amazon Key program, on the other hand, it was more than a month after Walmart’s announcement.
“It was a good fuck-you moment,” one former Walmart e-commerce manager told me. “We had a lot of really great press and we beat them to the punch on in-home delivery. The story was then that Amazon follows Walmart. We were leading and Doug really wanted to be leading on certain things.”
To be sure, no one inside Bentonville headquarters or on Wall Street was confusing Walmart for Amazon. But those moves were making waves.
McMillon’s involvement in helping to shape this new narrative had started even earlier. On the day the Jet acquisition was finalized, for example, Walmart published a blog post under his name with a headline that imitated media trends of the time: “Five Big Reasons Walmart Bought Jet.com.”6
At the top of the list, McMillon wrote: “Jet.com created a unique, transparent way for customers to shop, helping them make choices that lower their prices as they shop—from building smarter baskets to opting out of free returns and using debit cards. This has helped Jet.com win fans among savvy shoppers and will help us put the power to save in more shoppers’ hands.
“Look for that on Walmart.com,” McMillon added.
Jet had indeed created a unique shopping experience in which customers earned discounts as they added more merchandise to their orders. The startup dubbed this feature the “Smart Cart.” Internal data showed that the more items a customer added to their online shopping cart, the more likely they were to add another item to their cart, a former executive told me. That wasn’t the way e-commerce typically worked, and that should have been a good thing for Jet, and for Walmart. Packing more items into a single online order can reduce costs and give a mass retailer a better chance at earning a profit, since different product categories carry different profitability characteristics.
No, the discounts that the Smart Cart offered Jet customers often had little to do with actual lower logistics costs, which is what executives boasted about publicly while Jet was still an independent startup. But the technology behind the Smart Cart did largely work, and Walmart’s massive store and warehouse networks could have helped lower those costs and bring the true promise of the Smart Cart to fruition on Walmart.com. At least in theory.
But some Jet executives already knew that the terms of the acquisition prevented Jet.com from selling a lot of its most popular merchandise for a lower price than Walmart. That would make the original Smart Cart model tough to keep alive, even on Jet.com. To do so under those circumstances, Jet executives ended up crafting a cocktail of solutions that included raising prices on some goods, swapping out some items for similar ones that weren’t the exact pack size of what was sold at Walmart, and even rejiggering how Smart Cart savings were shown on Jet.com so they wouldn’t be displayed next to items that Walmart also sold.
But if items couldn’t be priced cheaper on Walmart’s websites than in its stores, there was seemingly no practical way that the Smart Cart would ever make its way to Walmart.com too in its original form, since some of Jet’s workarounds like raising prices wouldn’t work under the Walmart brand and its commitment to everyday low prices. (Shortly after the acquisition, Walmart’s US CEO, Greg Foran, and Jet executives had debated over a complicated pricing agreement to limit the friction between the e-commerce sites and the profit machine that was Walmart’s chain of Supercenters. One Jet executive cheekily dubbed it the Treaty of Versailles.)
In short, some insiders were realizing that the Smart Cart as originally constructed didn’t have any real future on Walmart.com. Still, a year after the deal closed, Walmart executives were continuing to talk publicly about the innovation as one of the keys to the $3.3 billion deal.
“Over the next year, you’ll see the Smart Cart technology on Jet migrate onto Walmart.com,” Lore told investment analysts at a conference in the fall of 2017.7 In early 2018, McMillon repeated a similar expectation on a call with Wall Street analysts, saying, “You’ll start to see Smart Cart functionality move over to Walmart.”
What they apparently were reflecting at the time—whether it was clear to outsiders or not—was an internal broadening of what the Smart Cart phrase meant. Several former Walmart e-commerce executives told me that, internally, they began using the term “Smart Cart” more loosely to include other website features that influenced customers to take actions that helped strip costs out of Walmart’s existing systems, while providing some benefit in return to the shopper. The discount offered to online customers if they picked up their order at a local Walmart store rather than having it delivered was one example. When Walmart introduced a next-day-delivery offering for orders of $35 or more in 2019, some executives also considered that a Smart Cart perk. In order to make the economics of next-day delivery work, Walmart only offered it on items that could all be shipped out of the same warehouse, thus limiting supply chain costs that the company might incur when items in a single online order have to be packed and shipped from multiple facilities. Still, this was not what many outside the top executive suite thought to be the Smart Cart innovation.
“I think they missed out in a huge way by not implementing Smart Cart,” said Joe Gullo, a supply chain leader who worked at Jet and then Walmart following the acquisition.
But during 2017, the first full year that Jet executives were in charge, the future of Smart Cart still seemed bright. So did Walmart’s digital future in general. On the day that Walmart’s acquisition of Jet was finalized in September 2016, Walmart’s stock price closed at around $73 a share. By the middle of November 2017, it had briefly traded as high as $100. For some of Walmart’s top executives in its store division, the stock price and the resulting boost in their personal fortunes helped stem some of their doubts about the expensive growth plans that Lore and team were enacting.
That holiday season would be a big one for the Jet team. While they had been through one Walmart holiday season already after the deal closed in September 2016—a rough one in which a key automation system in Walmart’s e-commerce warehouses broke down during the Black Friday weekend—many of the strategies and plans were already decided by the time they had joined. So the fall of 2017 would mark the first holiday showdown against Amazon and other rivals with Jet folks in full control of Walmart’s US e-commerce division. Their credibility was riding on it.
But there were conflicting demands being placed on the new leaders, several former employees told me. Some US Walmart store leaders wanted the e-commerce division to match the blowout, doorbuster mentality of shopping holidays inside Supercenters.
“Most senior [store] managers were addicted to winning holiday and just burning the house down,” Hilton, Walmart.com’s revenue chief at the time, said in reference to the negative impact that these holiday discounts had on e-commerce profits.
Meanwhile, Walmart finance executives were pressuring Lore to rein in his division’s losses, which were coming in higher than planned. After registering quarter after quarter of e-commerce growth of 50 percent or higher in the first three quarters of 2017, Lore surprised some of his employees by telling them to take their foot off the gas heading into the holidays.
“It was a very anti-Marc way of doing things,” a former employee told me.
Walmart chief financial officer Brett Biggs indirectly messaged a planned slowdown to Wall Street at an investor day that October, when he said the company would register $11.5 billion in US e-commerce revenue for the full year. To do some quick back-of-the-envelope math, that would mean fourth-quarter e-commerce growth was set to decelerate into the 20s percentage range.
When Walmart released results for the holiday quarter in February 2018, investors seemed shocked that US e-commerce growth had decelerated to 23 percent from 50 percent in the third quarter, and 60 percent in the three months prior to that. The stock dropped nearly 10 percent—the largest decline in more than two years—knocking more than $30 billion off the company’s value.8 Meanwhile, Amazon recorded 38 percent revenue growth across its varied business lines for their own holiday quarter. That rapid growth was coming off a substantially larger e-commerce sales base, too.
“The majority of this slowdown was expected as we fully lapped the Jet acquisition as well as creating a healthier long-term foundation for holiday,” Walmart’s McMillon would say on the earnings call.9
But there were issues on top of the planned pullback. McMillon discussed them briefly, pointing to “operational” problems related to not having enough space in facilities for both popular holiday gifts and everyday merchandise, which hurt the company’s ability to keep in stock those items customers order year-round.
Some Black Friday merchandise sold out by Thanksgiving, according to news reports from the time.10 And in a key West Coast warehouse in Chino, California, automation system issues led to holiday orders being shipped out slower than normal. The company also wasn’t used to the volume of product that Walmart.com was pumping out and underestimated how many packages they could ship out of their doors each day. If new e-commerce executives asked leaders at the warehouse facility in Bethlehem, Pennsylvania, for example, what kind of daily volume they could do, they may have said 200,000. In reality, it may have turned out to be somewhere around half that amount. The inability to accurately forecast shipping volume wouldn’t bode well for the leaders of these warehouses inherited by Jet executives.
Inside the company, the bad press from the e-commerce revenue slowdown was fuel for longtime execs who had wanted the company’s web division to match some of the blockbuster sales happening in stores.
“The negative media attention drove some store execs crazy,” a former Walmart e-commerce employee told me.
But the stock sell-off also had a different kind of impact internally within the e-commerce division.
“It was a big wake-up call for the organization that, ‘Holy shit, e-com can move the [stock] market,’” the employee said.
Lore and company would continue to try to use that fact to their advantage during the honeymoon phase. Lore’s strategy “to win” in e-commerce included three legs. The first was “nail the fundamentals”—the unsexy grunt work that was code for making improvements to Walmart.com so that it became “a good enough” alternative to Amazon. Amazon, of course, was way ahead in merchandise assortment, delivery speed, search engine technology, customer reviews, and most everything else.
So, the e-commerce division decided it needed to continue to chip away at these advantages with incremental improvements. “Have it,” “Find it,” “Display It,” “Price It,” and “Deliver It” was Lore’s shorthand for the metrics used to judge Walmart.com’s progress. This was the defensive part of the Walmart strategy to battle Amazon.
The other two sides of Lore’s strategy triangle were Walmart’s offensive plays. The places Walmart could win. They were “Innovate for the future” and “Leverage unique assets.”
The first of those two buckets involved experimentation that created a lot of the sizzle that Lore and team were advertising their first year in power. One example was a test where Walmart store employees would deliver customer packages on their way home from work. Another involved a partnership with Google to let shoppers reorder goods from Walmart by simply giving a voice command to a Google smart speaker. The Store No. 8 startup incubator was the flagship of this strategy, with the group touting the exploration of how technologies like virtual reality would impact the retail industry in years to come.
Yet the unsung heroes of Walmart’s e-commerce growth during the honeymoon—and the weapon that Amazon executives had long feared in their once-uphill battle against the brick-and-mortar retail wrecking ball—was actually the existing Supercenter stores themselves. Everyone at Walmart, including Lore, knew that great swaths of the US drove by Walmarts on a daily basis. That, coupled with the retailer’s standing as the largest grocer in the US, offered something Amazon would have trouble competing against. Even before the Jet acquisition and Lore’s arrival, Walmart was already offering a curbside pickup option for online grocery orders at nearly four hundred Supercenter locations in the US.
By the time Lore and his teams had spent about a year inside Walmart, the grocery pickup rollout had expanded to nearly one thousand locations, and the majority of that work was being executed by teams overseen by Greg Foran. The service had the highest customer satisfaction score of any main offering at the company.
The narrative around Walmart as a digital laggard was changing. The press and investors were paying attention. Rank-and-file employees were energized. And Lore was getting credit for this revival. Whether that would be a good thing in the long run was an altogether different question.