Online retailer Jet.com recently launched to a tremendous amount of press. Some publications heralded it as the next great concept in online retail. But is it really? In case you haven’t yet heard of Jet.com, the site was founded by Marc Lore of Quidsi (Diapers.com / Soap.com) fame. The idea behind it is that you pay a $50 per year membership fee and that is the only place in the chain where the site makes money. The website claims it does not mark up any items. If this concept sounds familiar, then you likely have been a member of a warehouse store such as Costco or Sam’s Club. Those stores utilize membership fees so that they can change no greater than a 15% markup versus the 25 – 50% markup of their brick and mortars competitors. This sounded fantastic to us, so we decided to take a closer look.
We can all agree, the concept behind Jet.com is pretty amazing, but how does it actually play out. First let us take a look at the site. It almost feels like someone gave up trying to organize it. Say you are looking for a Misfit activity tracker; they only sell one model but each color is labeled something slightly different. Additionally, some colors are considered sporting goods and others are electronics. If you are looking for a pair of wireless Beats things get even weirder. A search for “Beats,” shows several different models that are wireless but if you search for”wireless Beats” or mark the “wireless” filter only 1 pair is found. Early users also report issues checking an order’s status and being informed that an item is unavailable days after it was ordered.
Next, lets take a look at the numbers. Clearly the concept of reducing margins makes a meaningful difference when you are comparing warehouse stores to traditional retail. But how does the concept play out for online? Turns out not well. Harvard Business Review took a look at Amazon’s numbers last year and based on an operating profit of $178 million from revenues of $89 billion, the retail giant had a .2% margin. Practically speaking, .2% for most items is close to nothing. A cursory look through Jet.com supports these finding, as almost every item we looked at was priced the same as on Amazon. Even if we found something that offered savings, based off of the above numbers, the savings would likely be minimal and easily matched.
So, then, what is the value proposition of Jet.com? For the shopper, not much it seems. The selection of merchandise is limited and sometimes impossible to locate, the services provided through the website are reported to be subpar, and the $50 annual membership gets you very little. Amazon, by contrast, charges $99 annually for free same day and two day delivery on a vast selection of merchandise, free streaming movies and TV shows, and free e-book rentals. If for some reason consumers prove to be more value conscious and flock to Jet.com, Amazon is nimble enough to be able to reduce margins on select items or lower Prime pricing.
Since it is unlikely many people will switch from using Amazon Prime, why does Jet.com exist? More than likely it exists solely to be acquired. Whether it is purchased by Amazon to make it go away or by a brick and mortar looking to improve their online presence, Jet.com makes more sense as an acquirable asset than as an independent business.
Have you shopped with Jet.com? What has your experience been? If not, why not? We would love to hear your thoughts on this.
