Jet.com beats Amazon and Walmart on price
There’s a new low-ball retailer in town and it goes by the name of Jet.com. The site founded by Marc Lore, former co-founder and CEO of Quidsi (Diapers.com, Soap.com, etc.), promises the lowest prices online. So far, according to new price comparison research, the site is doing just that.
Earlier this week, Profitero did a price comparison of 16,028 exact match SKUs across seven categories (baby, beauty, electronics, grocery, household, office supplies and pet) and found Jet’s prices were nine percent lower overall than Amazon and six percent below Walmart.
The amount of the price disparity varied by category. Jet was 12 percent cheaper than Amazon on pet supplies. The only category in which Jet came in second was grocery. There, Walmart’s prices were two percent cheaper than the well-funded startup (backers include Goldman Sachs and Google).
Although Jet’s prices were cheaper overall, the Profitero research found Amazon and Walmart were able to offer lower prices on individual items, particularly in the electronics and office supply categories.
"Jet is pricing aggressively at launch, especially on key household essentials such as baby, beauty, pet supplies, and household products," said Keith Anderson, VP strategy & insights at Profitero. "Price competition is at the center of Jet’s strategy, and the price comparisons Jet includes on its own product pages are likely to intensify competition."
Source: Profitero eCommerce data, 7/21/15
The Jet model works much like a warehouse club. The site charges $49.99 a year for membership and promises to keep product markups to a minimum. In an interview on CNBC’s "Squawk Box" on Tuesday, Mr. Lore said Jet was would also keep prices lower than rivals through the use of proprietary technology that pulls cost out of the supply chain.
"If you have two things in your basket and you shop for a third thing, the cost of getting that product to you varies dramatically based on what’s in your basket," he said. "If we can get that thing to you in the same box in close proximity to you, the shipping cost is much lower."
For its competitors, one of the most dangerous aspects of Jet’s entry is that the company is currently focused on gaining members, not making money. In fact, Jet is selling products on its site that it doesn’t stock. In those instances, Jet will order the item from another merchant and sell it to its customers at a loss. The Wall Street Journal placed an order that included 12 items not sold on the site. The result was Jet paid nearly double for the goods than it charged the customer.
According to Mr. Lore, it will take roughly 14 or 15 million customers generating revenues of $20 billion to achieve the scale Jet will require to become viable for the long haul. While it may be losing money on sales right now, Mr. Lore believes Jet will reach the $20 billion figure within five years.
"But then the opportunity is this is a $1.2 trillion market in 10 years," Mr. Lore said in the "Squawk Box" interview. "There’s an opportunity here to create a multi-hundred-billion-dollar business. So yeah, there is plenty of upside once you get to $20 billion. That’s the idea."
- eCommerce Insights: Jet.com Pricing Analysis vs Amazon and Walmart – Profitero
- Jet.com Founder & CEO Marc Lore Speaks with CNBC’s ‘Squawk Box’ Today (Transcript) – CNBC
- Frenzy Around Shopping Site Jet.com Harks Back to Dot-Com Boom – The Wall Street Journal (sub. required)
- The Problems with Jet.com’s Pricing Model – Harvard Business Review
What do you think of Jet.com’s business model? Five years from now, we will be saying Jet.com was a success or failure? If you’ve joined the site, what has been your experience?