Jay Leonard
I applaud the efforts of Jet.com and its willingness to innovate in the retail space. Marc Lore, Jet’s CEO, is a very talented individual who successfully launched Soap.com and Diapers.com to sell them to Amazon for a very sizable sum.
Yesterday Jet sent me an email announcing membership will be free for everyone. As a consumer it is a welcome move, but memberships are the core of the Jet revenue and profits model. Why would they stop selling them unless customers are not buying it?
Shopping Experience
My experience with Jet started many months ago as an Insider. As someone who is interested in business strategy and ecommerce (and yes, in saving money too) I signed up and shopped around Jet.com a couple times. So far, I am not impressed:
- Most products I have checked on Jet have been more expensive than other retailers.
- Not enough product selection. Today I purchased a 100” wall-mount projection screen. Jet had 4 options, Amazon listed 2,523 products. I looked for the Nikon 3200 camera body, Jet only sells the bundle.
- Limited product information. No product reviews, limited product information, incorrect pictures in some cases.
- No cross-selling. No product suggestions
Overall, I found the shopping experience at Jet to be inferior to even some of the most basic online stores. The site is targeted at customers who already know exactly what they want to buy, and mainly at low-priced everyday items. Their own ’most popular’ product categories include soap and paper towels. Seems to be the product categories Mr. Lore knows best.
How is Jet doing?
Here is the information I have found and what I was able to infer about Jet’s success to date:
- com estimates just under 4 million unique visitors for August, the latest data available
- Google shows fairly flat interest in the past month, not a progressive increase as you would like to see when growing a startup
- Alexa shows the site ranking at #435 in the US based on Jet’s traffic
- com, who probably has a similar average order value, is 22 spots ahead #403. The company generates $1.5B in revenue, but their model is optimized for repeat purchases.
- com is close at #485 with $311 million in online sales per quarter
- Even Kmart is ahead of Jet at #422
- In a recent interview, the company stated they are ‘approaching 20,000 daily orders’. Let’s say they have 17,000 at an average order size of $45. That would be $765K per day, or $280M per year.
- A Techcrunch article states they did $20 million in sales in September, Which would put them at $240 per year
- The company is still buying customers
- Jet is buying adwords keywords for low-priced items such as Soap, Wesson oil, Toilet paper and Foam Cup
- The company offers $10 On First Order of $35. They are surely losing money on the first sale. At 5% margin, which is generous, the company would have to sell $200 per average customer to make up for the $10 they are giving away.
Observations on Jet.com’s business
Going from zero to $280 Million in a couple of months is an impressive feat, but it is not necessarily a success for a startup with $200M investment and does not create a challenger to Amazon.com.
More importantly, is this sustainable or a result of initial interest and curiosity? What happens after the site is not a novelty, the newsworthiness of the site dies down and the $10 coupons are not available anymore?
Another key factor is the retailer relationships. Will they continue to see value from Jet or will they stop doing business with them? One of my only purchases on Jet was a gift, which I found on Jet at a lower price than other retailers including Macy’s. The item was drop-shipped for Jet by Macy’s as indicated by the shipping label. The price was lower on Jet and I did not pay for shipping. Who is eating the difference in price?
This means one of two things: One, Macys is offering Jet a lower price than it offers customers, which is not very smart, in this case Macys left money on the table because I was going to buy from them direct instead of buying from Jet. The second option is Jet is subsidizing the cost, which was a very common practice in the dot com days (remember Pets.com?) and is clearly not sustainable.
Path to Profitability
Jet stated many times the $50 membership was going to be their main source of income. Mr. Lore’s was quoted as saying “the bottom line is, we’re basically not making a dime on any of the transactions” as the explanation on how they would make money.
The company has stated it needs to get to $20 in revenue by 2020 to become profitable. 2020 is a long time away. The plan states 15 million paying customers, which would pay $750 million in membership dues at $50 each and would buy $1300 per year on average.
Now that membership is free they will have to find another source to generate three quarters of a billion dollars, or 3.75% additional margin on $20 billion in sales – but that’s just to break even, not to generate significant profits.
Growing from around $250 million to $20 billion is a huge challenge. Especially with an unproven model that is immature and still changing. Jet’s stated competitive advantage is to offer lower prices, but their model does not allow them to acquire goods at lower costs than WalMart, Target or Amazon.
How can Jet make 3.75% margin while offering customers 4% to 17% lower costs than retailers, plus free shipping and free returns? Anyone who understands the margins in retail knows consistent 4% margins are a fantasy in such a competitive market.
One thing we know for sure is Jeff Bezos is not sitting and waiting, he is fiercely competitive and has demonstrated he is OK with subsidizing prices for a long time to win in a particular market and to crush the competition. One only has to read about how it pressured Lore’s own Diapers.com.
Jet’s Biggest Problem
The biggest challenge for Jet to solve is not the bad shopping experience, it can be solved with money and technology. It is not the lack of margins, as other retailer have figured how to succeed in low-margin online retail. Their biggest problem is not cash flow, as they seem to have plenty of money – for now.
No, their biggest problem is that Jet has failed to own a place in customer’s minds. Let me explain. The Job to Be Done philosophy makes us look at products, services (and websites) as being hired by consumers to do a job.
The best example is Geico. Their latest ad campaign wants to make Geico your obvious choice when you have a particular need: “…When you are a Shark, you attack, that’s what you do, when you want to save 15% on car insurance, you switch to GEICO, that’s what you do.”
When you want electronics you go to BestBuy.com, that’s what you do. When you want pizza you go to Domino’s, that’s what you do. When you want coffee you go to Starbucks, that’s what you do. It is the essential idea every brand needs to capture. When you want to search the web, you go to Google, that’s what you do. For online stores, they need to own a specific buyer intent.
What is Jet’s job to be done? They don’t have one.
Amazon started with one category. Books. They owned the customer intent of buying books online. Maybe even for buying books. I go to Barnes and Noble when I want to browse books. Amazon added categories slowly, one at a time. Only when they had secured a strong position in customer’s mind.
Jet’s efforts right now are aimed at competing with WalMart, Amazon, every SuperMarket and pharmacy store for the intent of buying…soap and paper towels? That is a low cost, low margin category, one where Jet will have a huge challenge to own, and one where $20 billion in sales and 4% margins are going to result impossible.
My Prediction
I wish Jet the best. I am sure they employ lots of very nice people. From my vantage point, however, my prediction is not very positive:
I think there is a 80% chance Jet will cease to exist in 24 months for a fraction of the $200M+ investors have put in, or will be absorbed by a larger company mainly for its customer base and some of its core technology .
There is a 20% chance Jet will evolve its business model (it’s doing it already) and will find success with a different formula. They might build a niche around a category, most likely not reaching $20B in sales in 2020.
What do you think?
This article was written for Business 2 Community by Jay Leonard.
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Have to disagree (Don’t work there or own any shares of jet ) I think cheapest prices online varies depending on the items.. Amzn is cheapest in books for sure.. But people don’t care about name brand in commerce anymore ..they only care about the cheapest price.. I use amzn for reviews all the time but end up buying on either eBay or groupon or even Craiglist..and I think they did a smart thing when they drop the $50 membership fee..it opens the door for guys like me to continue to buy at their site.. It’s all about the buzz and market share in ecommerce.. They’ve only been open for couple of months and they are on my top list for online shopping.. If they don’t disappoint for Black Friday in prices, I think they will be staying for a while..somewhat true about burning cash and profit margins, but they have enough capitals to figure out profitability and fix all that before folding their hand.. It’s not like 90s dot com era.. Moreover I think offline will struggle even more as company like jet makes me buy detergent in their site instead of Costco or Walmart ..
Their prices are lower than other retailers. Enjoy the party while it lasts.
I just tried them, and they’re horrible. Everything is dropped shipped from 3rd party vendors so half the stuff you order is late. Customer service is responsive but they don’t offers solutions. Saving a few bucks isn’t worth the headache.
Here’s a different perspective: I won Jet’s Insider competition and now have 100,000 stock options. I think they’re great, but more importantly I have met someone who is a huge fan of Jet, and they have no connection that I know of. My wife introduced Jet to some friends, and one is now pretty crazy about it. From what I can see outside of my friends, Jet has a pretty crazy following, and is doing one of the best jobs I’ve ever seen of quickly creating a brand that tons of people love. Part of the impressive brand building by Jet is personal, hand written, and hand drawn thank you notes that my wife and I, and many others have gotten. Of course I hope they succeed beyond any person’s expectations. But the crazy following is hard to miss…. right now there’s a 20% off sale for just a few days, right here: Jet.com
Jet.com’s prices are only great if they actually have the product. I ordered from this company and was told 3-7 business days for delivery. I keep calling and they don’t even have the product on hand AND they don’t even know when it will be available. I would much rather spend $45 more (the difference between other vendors) for the same item knowing I will get it in time. They also don’t have a problem with putting a hold on credit and debit cards for the amount of the product. I have asked several times for the order to be cancelled due to their lack of inventory but they have denied my request. They are essentially holding my money ransom. This company has no integrity or customer service. I’ll shop at Amazon anyday. And no I am not a stakeholder of Amazon. I’m just someone trying to get a family member the item they wanted in time for Christmas.
This article is spot on. The prices are a mix bag based on category. You may find cheaper prices in some areas but not in others. I searched the electronics section and found the prices much more expensive than other sites. It seems they increase the price to discount the price to come close to matching cheaper prices on other sites. If you pay attention to text that appear below the purchase button, you will see a message for your first order and 10% discount. The message is (Brand restrictions apply. Maximum discount $50). This will not be around long because the prices are way to high and shoppers are very savvy these days. The CEO is delusional or trying to get a deep pocket sucker to buy him out. Guess he thinks he can get Amazon to buy him out a second time.
Jet.com Customer service is awful. They don’t know how to treat customers in a positive way. No way they can compete with the likes Amazon or Costco. Wayfair, FreshDirect, PeaPod, Boxed.com etc. are providing some amazing shopping and customer service experience. #JetCustomerServiceSucks
I agree with Veer. We had orders just canceled with no explanation whatsoever. Turns out we were in violation of their terms and conditions – only one Jet.com account per household (no, we did not take the time to read all terms and conditions on the site – would you?)
When I called in to find out the reason for the cancellation, it turns out the accounts in our household were all deactivated (no warning about that either). The customer service rep was pretty nasty and basically accused us of being in violation of their terms and conditions, so any future account we tried to open would be closed immediately, as well.
Wow. Ok, we are fine with just one account per household, but in order to be reinstated, we had to have her send a request to a whole separate department where we would be subjected to an evaluation to see if they would be willing to grant us absolution for our sins. There was no guarantee we would be allowed to have our account reinstated, but if we begged maybe they would consider it.
I indicated that it was fine – we were ok shopping elsewhere. We spend on average $7000-$10000/month online shopping, so we know other places to go to get stuff we need.
The customer service rep accused me of calling in ‘just to argue with her’. This is untrue – I called to see what happened to the order and to suggest that the company inform people why they are canceling orders and to let them know their accounts are also being closed. And also to reconsider treating their customers like criminals.
What a crappy site and even crappier prices. This is some rich dude’s ego experiment. It is bound to fail, as it has nothing unique to offer neither any incentive. The CEO hopes he can sell it to Amazon for a big gain, but that wont happen. Their operating expense will end the experiment prematurely..
Jet is inconsistent, their prices go up and down . For example, I have been buying cat treats at jet they started a few months ago at $1.99, then $2.31 and now from $2.31 they are $3.24 which is standard market price. They gave me free shipping for a year, When they are cheaper on an item than target I will buy from them. When the free shipping ends so does my buying from Jet. Target also has free shipping, no minimum and 5% off with the red card. I don’t see them around very long
I ordered a pair of Polk bookshelf monitor 40 speakers, they sent a single monitor 60 floorstanding instead, they told me they would have to refund my money and I would have to reorder the item, which is now listed for $59 more. No thanks…. $25 dollars cheaper at newegg.com. still waiting for the refund though. Won’t be using them ever again.
About that 3.3 B exit…
Jet is sold for 3 billion to Wal Mart. Game Over.
Well, Jet is acquired by a larger retailer as I predicted in the article.
It’s a great way to cash out for Marc and other investors, especially because WalMart paid a crazy high amount of money for Jet. My thoughts on that transaction here http://www.quora.com/Was-buying-Jet-com-really-the-best-move-for-Walmart-if-theyre-trying-to-beat-Amazon/answer/Gerardo-Dada
I was on Jet today and I didn’t like the experience, It is true they need to find a niche and become better at that. The website is not user friendly as Amazon.