By Sarah Nassauer 

Walmart Inc. is talking to investors and companies about taking over its Jetblack personal shopping service in a potential spinoff that would have the unprofitable venture's CEO Jenny Fleiss exit, according to people familiar with the matter.

As of early this summer, Jetblack was losing around $15,000 per member annually, according to documents viewed by The Wall Street Journal.

Walmart has been working since at least this summer to spin off Jetblack by raising money from others interested in the business, including a logistics provider and a payments company, these people said.

The retailer has engaged several potential partners including Microsoft Corp. and United Parcel Service Inc., as well as venture-capital firms, including New Enterprise Associates, some of these people said.

Negotiations are ongoing and it is unclear if those firms will ultimately decide to invest, the people said. The talks are expected to continue for several more weeks and involve other investors, one person said.

Jetblack was developed at Walmart's internal incubator and spinning off those projects with external partners is one of the goals of that initiative, said a person close to the company.

Walmart is expected to retain a stake in Jetblack, the people said.

To date, Jetblack has been a costly project serving a small customer base in New York City who pay for concierge-like shopping by text and fast deliveries. Walmart has budgeted $60 million for Jetblack this fiscal year, said another person familiar with the business.

In the face of large losses per member, Jetblack has tried to allow more members to join from a waiting list, but service quality often falls soon after, say current and former employees. The service had about 600 active members as of this summer, according to documents viewed by The Journal.

Ms. Fleiss, who previously co-founded apparel rental company Rent the Runway, will step down as CEO of Jetblack in conjunction with the spinoff, one of the people said. Walmart didn't make Ms. Fleiss available, and she didn't immediately respond to requests for comment.

Nate Faust, a longtime lieutenant of Walmart U.S. e-commerce CEO Marc Lore, has taken a leadership role at Jetblack and has been working since at least this summer to spinoff the unit, some of the people familiar with the situation said.

Bloomberg News earlier reported that Walmart was weighing the future of Jetblack, had received inquiries from unnamed parties and that Mr. Faust could take a leadership position at the business.

Walmart executives have touted Jetblack as a potential avenue for growth and research since the service launched last year, offering members, some paying $600 a year, the ability to order anything except fresh food via text message for fast delivery.

Walmart didn't see Jetblack as a profit center, but as a way to eventually power an automated personal-shopping service, preparing Walmart for a time when the search bar disappears and more shopping is done through voice-activated devices, executives said earlier this year.

The largely manual nature of delivery and product ordering by text message at Jetblack is costly, but the largest expense per member has been selling products at a loss, according to documents reviewed by the Journal. That's because Jetblack promises members the lowest available price, but often has to buy the product at a higher price from a New York City store to meet its fast delivery promise, said a person familiar with the system.

Jetblack has worked to lower that expense by partnering directly with other retailers and buying more from Walmart directly, said this person.

"It's the tech of the future, right? It's not what everyone is doing today," Ms. Fleiss told the Journal earlier this year, describing the experimental nature of Jetblack's mission inside Walmart. She said it could be five to seven years before the system is mostly automated and less reliant on humans. "This is a long journey," she said. "We were aware of that going in."

Walmart bought e-commerce startup Jet.com in 2016 for $3.3 billion, placing its founder Mr. Lore at the head of its U.S. e-commerce operations. Mr. Lore spearheaded the Jetblack launch inside Walmart and hired Ms. Fleiss in 2017 to run it.

In the wake of the Jet.com acquisition, Walmart also bought a string of smaller e-commerce companies, including men's apparel retailer Bonobos and ModCloth, a women's apparel retailer. Friday, Go Global Retail, a group of retail and operation executives investing in retail companies, said it had agreed to purchase the assets of ModCloth from Walmart for an undisclosed amount.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

 

(END) Dow Jones Newswires

October 04, 2019 16:55 ET (20:55 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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