Jet Launches Amid High Expectations
The considerable hype that Jet.com received prior to its launch created high hopes for the subscription shopping program. In the months and days leading up to its debut, Jet CEO and founder Marc Lore tried again and again to downplay the notion that his company would compete head-to-head with Amazon. Those efforts failed, but now that it’s live, consumers and analysts can and will decide on their own whether it fulfills their expectations — not to mention Lore’s recurring promises.
Lore’s biggest promise is that Jet members will enjoy prices “10 to 15 percent below the lowest prices online,” a bold pitch in today’s hyper-competitive retail landscape. As Amazon continues to dominate the increasingly crowded e-commerce space, a growing number of brick-and-mortar retailers are offering to match its online prices in their stores. The entry into this field of a start-up trying to capture market share by driving prices even lower could very well test the margins of all sorts of merchants, large and small, online and off.
On July 21, Jet’s launch day, Profitero conducted a study to evaluate Jet’s lowest-price promise. Unfortunately for many stores, it found that Jet mostly lived up to the claim, at least compared to the online deals available that day at Amazon and Walmart. Profitero looked at 16,028 exactly-matching products (i.e., same UPC, brand, and size) across seven categories. On average, Jet’s displayed prices (before applying discounts for combined orders and other program benefits) were 9% lower than Amazon’s and 6% lower than Walmart’s.
Looking at exact matches across each category, the study found that:
- In pet supplies, Jet’s average prices were 12% lower than Amazon’s and 10% lower than Walmart’s.
- In household products, Jet beat Amazon’s prices by 11% and Walmart’s by 7%.
- In baby products, Jet undercut Amazon by 10% and Walmart by 8%.
- In beauty products, Jet’s prices were 10% below Amazon’s and 7% below Walmart’s.
Overall, Jet delivered on its “10-15% lower” promise in four out of seven categories against Amazon but in only one out of seven categories against Walmart. Walmart and Amazon did offer better deals than Jet did on quite a few specific items in each category. In office products, for example, Amazon had lower prices than Jet on 18% of exactly-matching products, and Walmart undercut Jet on 17% of such items.
Of course, while these comparisons might be useful to industry observers, their influence on individual consumers is likely to be limited. For one thing, the retail price of an item doesn’t include all of the costs that online shoppers have to pay to acquire it. Beyond that, consumers don’t take “average prices” into account when they’re shopping. Most of their purchase decisions are based on the total price they’ll pay to get the specific item(s) they want at that moment.
In that respect, though, it’s not surprising that members shopping on Jet.com will see Amazon’s best price next to Jet’s price for about 90% of products. The Jet business model depends specifically on its “lowest price” claim, so its main target audience is cost-conscious shoppers, people whose primary goal when they shop online is to find the lowest possible retail price.
Jet’s algorithm allows members to see their discounts grow in real time as they add items to their shopping carts. Jet also uses a variety of tactics — passing along its own sales commissions; offering discounts for longer delivery times, the waiving of returns, and shorter shipping routes; etc. — to increase members’ price breaks on individual purchases. Shoppers who order in bulk, though, either on the spur of the moment or through pre-planned purchases, will receive the biggest rewards from Jet’s shopping model.
It remains to be seen whether that audience and Jet’s money-saving offers are substantial enough to achieve Jet’s aggressive goals. The plan is to scale up quickly enough to reach 15 million members and $20 billion in revenue from merchandise sales by 2020. If Jet can do so, Lore says the program will become “economically viable.”
To aid the cause, Jet will take its profits only from its $50 membership fees, using any savings it might realize through fixing various process inefficiencies (and elsewhere) to keep prices as low as possible. To attract and retain members, it will also purchase items from other vendors and resell them for less through its “Jet Concierge” service, absorbing huge losses in the process. Jet plans to spend up to $300 million on the service in the next five years.
Jet can afford to do all this right now; it raised over $220 million in start-up funding last year and is in discussions with investors to raise more. However, Jet faces considerable competition:
- Amazon generated $23.18 billion in revenue in Q2 2015 alone, and CEO Jeff Bezos has proven that he’s invested in maintaining Amazon’s leadership position in online retail, as Lore well knows.
- Amazon Prime, Jet’s real rival, keeps growing; it now has an estimated 44 million members, and it reportedly retains them at an 84% rate.
- More crucially, Prime features free 2-day shipping, the most attractive offer in the direct-to-consumer space. Online shoppers cite free shipping as the most important factor in their purchase decisions, well above low prices (which are also an Amazon staple).
- Walmart is heavily funding its online efforts, including a subscription shopping program, ShippingPass, that it’s testing at the same $50 annual fee that Jet uses. ShippingPass likely targets the same shoppers that Jet does, while offering free shipping, which Jet doesn’t.
It’s far too soon to know how well Jet will fare. It’s trying to “reinvent e-commerce,” which almost inherently requires an untested approach, and industry observers are uncertain about its prospects. Ultimately, though, shoppers nationwide will determine whether Jet fulfills its goals — let alone the expectations that others have placed on it.
