When you think of Amazon, you probably think of low prices and a wide assortment of merchandise. The same holds true for Costco; a members-only low price leader. Introducing Jet, a new player on the market looking to compete head-to-head with Amazon, offering the lowest prices, but for members only.
Jet.com opened its doors for the first time today. It’s goal is to lure customers away from Amazon and become be your new low price store. Jet is promising members-only “club price savings on pretty much everything you buy” for a fee of $49.99 a year. Jet allows you to buy in small quantities and still get the lowest prices.
It’s an unusual business model; while Jet has many items in their warehouses, they don’t have everything. If you order a product from Jet and they don’t have it, they will buy it from another retailer and have that product shipped directly to you with Jet absorbing any losses due to price discrepancies and/or shipping costs. You may buy a product from Jet, but receive a box from a different retailer, like Wal-Mart, J.C. Penney, Nordstrom, etc.
We’ll make it up in volume
How and why is Jet doing this? As a merchant, the bigger you are, the more orders you will have and then your orders will be larger, allowing you to command better pricing from manufacturers and distributors. So for now, Jet will lose money and hope that they can grow big enough to be able to be able to get better pricing and turn a profit. For now, they will lose money, but you, as the consumer may be able to get better deals on products.
But wait, there’s more…
You can collect cash towards future purchases just by buying goods. Jet is also taking a page out of the Ebates model and offering cash back to its customers simply by making purchases. Ebates.com, acts as a shopping portal, turning its customers into affiliates. Many retailers offer commissions to those who sign up to become affiliate marketers; if a customer buys a product through an affiliate marketer’s link, a small portion, usually around 3-6% is returned to the affiliate marketer as a commission. Ebates, and others including Jet now, share that affiliate commission with the customer.
The Jet arrangement doesn’t apply to all of the products that they sell; Jet sells products itself, but if customers want to buy a product elsewhere, Jet has hundreds of affiliate links with various retailers including notable stores’ websites like gap.com, apple.com and macys.com. This feature, with Jet is calling “Jet Anywhere,” kicks back the affiliate commissions it earns in the form of “Jet Cash” allowing members to use the affiliate commission for future purchases on Jet.
Losing money hand over fist
During an introductory, per-opening trial period, The Wall Street Journal gave the model a try, they purchased 22 items from Jet.com. Here’s a sampling:
Adidas ‘Supernova’ Long Sleeve Tee
PRICE CUSTOMER PAID: $41.82
FULFILLING RETAILER: Nordstrom
JET’S COST: $63.94
PRICE CUSTOMER PAID: $8.32
FULFILLING RETAILER: Drugstore.com
JET’S COST: $16.51
Grape-Nuts cereal (5 boxes)
PRICE CUSTOMER PAID: $15.30
FULFILLING RETAILER: Wal-Mart
JET’S COST: $38.75
PRICE CUSTOMER PAID: $19.43
FULFILLING RETAILER: Bed Bath & Beyond
JET’S COST: $85.82
More than half of the items, 12 to be exact, were shipped directly from other retailers such as Wal-Mart Stores Inc., J.C. Penney Co., Drugstore.com, Bed Bath & Beyond, and Nordstrom Inc.
Jet’s prices that they charged the customer for those same 12 items added up to $275.55, an average discount of about 11% from the prices Jet paid for those items on other retailers’ websites. Jet’s total cost, which also included estimated shipping costs and taxes, came to $518.46.
So, the order from the customer was just over $275 and jet paid nearly $519, resulting in almost a $244 loss for Jet on a $275 order! Sounds crazy; Jet accepts that the company will lose money initially, its goal is to gain millions of loyal customers willing to pay $50 a year to shop on their site.
Jet is expecting to make all of its profits from the $50 annual membership fee which customers would pay to buy from Jet. The company is forecasting that it will have 15 million paying customers by 2020; at about $50 per year in membership costs, Jet would generate roughly $750 million annually based from those membership fees.
Resulting in opportunities for consumers
Jet says that it will relentlessly undercut its rivals on product prices and will offer free shipping on orders of $35 or more and will offer free returns.
Time will tell if Jet can make inroads and erode Amazon’s leadership position, but for those willing to fork over $50 a year as a membership fee to virtually ensure that they are getting the best prices on merchandise, it may be a great opportunity. Will the model work? Only time will tell.
If you are interested in learning more about Jet.com, click the link below. To get you interested, Jet is waiving the annual membership fee for the first three months too! So, you have nothing to lose by looking around on their site. Just click the image below; by the way, that’s not an affiliate link…