Jet.com aims to change the e-commerce game
April 21, 2015 01:02 PM
Industry chatter aside, Jet.com chief revenue officer Scott Hilton says the yet-to-be launched but heavily hyped subscription-based online marketplace isn’t aiming to take on Amazon.com Inc.
“Amazon is going after a convenience play,” he tells Internet Retailer. “They’re venturing into music files and video. That’s not what we’re after. We’re focusing more on the savvy shopper. It’s more of a value play.”
It’s a value play Hilton and Quidsi co-founder Marc Lore hope turns the online retailing industry on its ear.
Jet, the online marketplace that has raised more than $200 million in funding to date but is still in testing mode, aims to bring the Costco/Sam’s Club subscription shopping model to e-commerce. The concept is that retailers and brands that sell on Jet.com will sell more because the site will encourage consumers to make choices that reduce the seller’s cost. That includes agreeing not to return items, selecting a slower delivery option, adding more items to the basket and choosing to pay with a debit card rather than a credit card.
“In e-commerce today, there are embedded costs that retailers are facing,” Hilton says. “There is inefficient shipping, basket size—a bunch of different things are embedded in the cost of online commerce.”
Jet.com’s goal is to minimize avoidable costs so retailers can sell profitably even as they pass cost savings to the consumer in the form of lower prices.
Here’s how the model works: Customers are charged a $50 annual membership fee, which lets them buy from select retailers allowed to sell on the platform. Retailers are able to adjust the price of goods they offer based on such factors as order size, shipping time or the distance their products are being shipped, and the retailers pay a set commission to be on the platform. Retailers also can lower prices if shoppers agree to waive the right to return the products, thus saving on restocking costs.
Hilton says the marketplace is run at cost, and the company will only profit from membership fees.
“The value of the company is based on how big everybody thinks this is going to be,” Hilton says. “We’re launching with 10 million products in our catalog at savings that are going to be very, very attractive. Our catalog is built off of all the retailers that are signing up.”
The site, in testing mode, has signed up 460,000 consumers to be part of its Jet Insider program. Jet Insiders will be able to shop on the platform later this month, and Hilton expects to launch to the general public in mid-June. Hilton says 1,400 retailers have signed up to sell through the platform, and the company has turned away at least 700 more in the interest of quality control.
“We’re looking that they’re a trusted retailer, which means they can legitimately sell the products that they’re offering, they’re going to ship it when they say they’re going to ship,” he says. “We’re trying to be very selective on the retailers that we’re letting on the platform.”
The key to a good experience for consumers and retailers lies in the variable pricing. Hilton says retailers can change prices on goods as often as they like.
“It’s a model that we believe is game-changing because not only does it make it better for the retailer, it makes it better for the consumer,” he says.
Some analysts are convinced that Jet will have a big impact.
“There is likely a large addressable potential market for Jet.com given the broad category reach and the large seller and buyer base the company has already attracted with minimal marketing,” Wells Fargo stock analysts Matt Nemer and Trisha Dill write. “In our view, many traditional retailers could benefit from being on the Jet.com platform, if they choose to participate. Larger retailers with a broad product assortment, a large store and distribution footprint, sophisticated inventory data, and low prices are likely to "win the sale" in many cases.”
“In the traditional online marketplace model, third-party sellers are awarded transactions based on a combination of lowest price and reputation,” adds Colin Sebastian of Robert W. Baird & Co., another investment firm. “However, Jet adds new variables to the algorithm, including shipping distance, order size and product combinations, with the goal of improving the customer experience (e.g., lower prices, faster ship times), and reducing unprofitable transactions for sellers.”
Jet.com currently has more than 200 employees. Most products will ship directly from the retailer to the consumer. However, Jet.com operates three fulfillment centers that will house such dry grocery items as pet food and paper towels, with one warehouse on each coast and another in the Midwest.
While the company hasn’t done much advertising to consumers yet, expect that to change once the site launches later this year. Most of Jet.com’s focus has been on reaching out to thousands of retailers to generate interest in selling on the platform, Hilton says.