> For example, The Wall Street Journal recently bought 22 items from Jet. Twelve were shipped to the Journal by retailers such as Wal-Mart Stores Inc., J.C. Penney Co. and Nordstrom Inc., according to sales receipts.
> Jet’s prices for the 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 includes estimated shipping and taxes, was $518.46.
> As a result, Jet had an overall loss of $242.91 on the 12 items. Mr. Lore says the loss is unusually large, partly because the items’ cost was low relative to shipping charges.
Wow. They must be playing a long game.
Can anyone explain how they expect to get that money back?
I remember my employer once tried to get a contract to build a new online store for a electronics retailer in the late 90's. They boasted they sold stuff at less than they paid for it and would someday make it up later. We lost the bid but they went out of business and never paid the winner, IBM.
If you charge less than you pay for you should go out of business, not raise more money. Giving money to a negative retailer is gambling not investment.
Amazon has an estimated 7~8% operating profit margin on its retail business [1] which is circa $6bn (on ~80bn revenue) - you could imagine an argument that suggested that competing with them is only possible given a consumer mind-share that's only available if you're practically the single destination for consumers. There are niches in which other retailers can flourish but that, if you want to gain that sort of wallet share, you need consumers to identify you as a place that anything can be bought at a price that makes it not worth shopping around, and that you can't grow into that role, because at any smaller scale, Amazon can (and has shown that it will) outcompete anyone with those ambitions. It's risky, and nobody would even consider it if capital wasn't extremely available at the moment, but if you genuinely believe that they could become a viable Amazon competitor in the retail space, then burning a few hundred million acquiring customers and making a name for yourself in the process doesn't seem so irresponsible.
That concierge model is going to be a post-sale nightmare as well. Returns, chargebacks, etc, with 2 separate credit card transactions from two separate buyers? Ugh.
Thanks...how does one do that with paywalled articles. I've tried to get archive.is to do this in the past but it just captures the paywalled article summary/
This is a losing proposition. I am very familiar with the space (I used to manage one of the largest categories at Amazon), and there is a lot of blind faith in Jet. While I do think another player can co-exist in the domestic e-commerce space, winning on price is going to be a very tough battle for a variety of reasons (Amazon can strong arm vendors giving preferential pricing elsewhere), especially if it requires a $50 membership fee. IMO, ways to beat Amazon would need to focus on the searching/browsability of items, focusing on certain categories where Amazon has less direct relationships, etc., and I'm not yet convinced that Jet is focused enough to do that.
Competing with Amazon on price is, um, ambitious, but even aside from that, you also need to compete with them on logistics infrastructure. Amazon has taught me that a) I shouldn't have to pay any shipping costs, and b) once I order something it should be at my door within 1-2 days. If you can't do that, I become annoyed. And I don't see that happening if they're just re-ordering things from other merchants, none of which can compete with Amazon in the logistics department either.
So, good luck I guess. Competition is good, but they've got a pretty steep hill ahead of them.
I think the difference between the dot-com boom and today is that back in the '90s, companies that were essentially speculative ideas with no proven market were receiving high valuations, whereas today companies that are targeting a proven market are receiving high valuations because they need to raise (and spend) a lot of money in order to successfully penetrate the market and grow quickly enough to achieve the economies of scale they need to compete effectively.
Marc Lore's a good bet for this particular market. He's already built a successful e-commerce company from scratch and sold it to Amazon. It appears that his plan for Jet.com is to tailor prices for each individual shopper in real-time, effectively targeting a profit margin of 0%. People in the US are familiar with the Costco/Sam's Club retail model (i.e. where you pay a membership fee to access discounted prices), and real-time, personalised pricing is incredibly powerful. You get to price off an individually-defined demand curve for each customer, and if people get familiar/comfortable with discounts that are applied to a shopping basket, rather than individual items, you reduce the competitive impact of a low price advertised by your competitor.
So Jet is a very risky bet. And partly backed by Norwest Venture Partners. Which is in turn owned by Wells Fargo. Who is apparently violating the spirit of the Volcker Rule, if not the letter.
http://www.reuters.com/article/2013/02/21/us-wellsfargo-priv...
Given the level of investment here, I have to hope that there is much more to this company's model than is discussed in the article - otherwise this is a 100% guaranteed loss for investors. When that loss happens, it will be bad for any other tech startups that try to raise money after it.
The money actually being used to fund this black hole is coming from large institutions that trust the judgment of the VCs and usually have no say in the funds' investment decisions. Tech valuations are only high at the moment because there is currently an imbalance of investment capital chasing private tech deals. One sure way to correct that imbalance is for VCs to betray the confidence that institutions are placing in their judgment by blowing hundreds of millions of dollars in massive, obvious blunders like this.
Had a beta access code and the site is a mess. They boast about having the lowest prices on the web but if you actually check their prices they don't. On many items they were quite a bit more expensive than other well known sites (but we're still quoting "savings" in the checkout cart.) Some items were cheaper but not by much. If their model is to beat everyone on price then that's a giant race to the bottom. If you claim to be a better deal but are actually more expensive, well then you're just dillusional.
Have you been on there recently? I must admit that early on it was messy... but you know its a startup in beta...
However, I disagree on the price bit. Their selection isnt as large as amazon yet but I have found them to be 5%-15% cheaper on all items that they do have.
It concerns me a little bit that they're losing money on each order - that's fine if they plan to have the same discounts at scale, and are just testing, but if they are just using low prices to get people to join, it seems troubling.
The business model sounds deeply flawed. The fact that they've been burning cash like crazy (like building a fancy HQ before even getting any revenue) isn't a great sign. I wish them luck but things are going to get real ugly real quick if they don't figure this thing out fast.
This is a great time to shop on jet.com. They are absorbing all of the costs!! If you really want to buy something cheaply you should do it now, before it goes under.
This is a great example of trying to get too big too fast without even testing the business model.
> Jet’s prices for the 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 includes estimated shipping and taxes, was $518.46.
> As a result, Jet had an overall loss of $242.91 on the 12 items. Mr. Lore says the loss is unusually large, partly because the items’ cost was low relative to shipping charges.
Wow. They must be playing a long game.
Can anyone explain how they expect to get that money back?