Will Jet.com Crash, Just 3 Months In?

Jet.com, the anticipated rival to Amazon, is dropping its $50 membership fee, just three months in, reports the New York Times. Marc Lore, founder and former CEO of Quidsi, launched Jet.com in July to offer retail discounts of 10 to 15% to customers on goods including clothes, books, electronics, appliances, jewelry and more.Initially funded with $225 million in venture capital, Jet’s initial business model must not have been working as expected, because now this members-only retail club is open to anyone.

Jet for All

In a blog post on Medium, Lore said he launched Jet to empower consumers and retailers by exposing hidden costs and find ways to eliminate them. The goal was to use the annual membership fee to cover the majority of the company’s costs, says PYMNTS. Lore explains the reason for dropping the fee:

“It’s been amazing to see how deeply this idea has resonated with our customers and retail partners, and we’re more committed than ever to extending the reach of our vision. I am therefore incredibly excited to announce that we’ve decided to drop the membership fee and make Jet free for all shoppers.”

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“The response to Jet’s core value proposition has been stronger than we anticipated. With the average number of units per order twice what we expected, Smart Carts have been the rule, not the exception. Our customers are taking every advantage of our dynamic pricing engine to place orders that can be fulfilled at a lower cost?-?and to have those efficiencies shared with them as savings.”

“In turn, our retailers are reaching new customers while capturing more efficient and profitable orders. By enabling even more people to embrace this new way of shopping, we believe we can more fully realize our vision of a reshaped e-commerce landscape and deliver unprecedented value to consumers and retailers.”

Though Jet is dropping the membership fee, Lore vows to keep the company’s promises:

  • World-class customer service 24/7 from “Jet Heads”
  • Free shipping on orders over $35
  • Free returns within 30 days
  • Shopping opportunities on “Jet Anywhere” partner sites
  • Advocacy for the company’s brand and retail partners

So what does Jet have that Amazon doesn’t? Jet offers “smart cart” pricing. When a customer puts item A in their cart, Jet will suggest related items. The more items a shopper puts in their “smart cart,” the larger the savings. In a January article on Bloomberg.com, Lore explains:

“The bottom line is, we’re basically not making a dime on any of the transactions. We’re passing it all back to the consumer,” Lore says. “We want to build a different type of relationship with the consumer. When we show you a product, it’s not because we are making money on it and not because we are closing out a line. It’s because we think it’s a good deal.”

Insider Take:This is a curious move on Jet’s part. Within 11 weeks of the site’s launch, it has already axed its primary revenue stream. While it is good for new membership and subscription companies to monitor activity and adapt quickly, we’ve got to wonder if Jet really gave the membership fee a chance to work. It isn’t a new concept after all. Companies like Costco and Sam’s Club have used this model for years – so why isn’t it working for Jet?Also, PYMTS reports that the discounts aren’t as deep as originally expected. Instead of offering prices 10 to 15% below those of other online retailers, Jet is now in the 4 to 5% range because suppliers weren’t crazy about the pricing structure. Thus, inventory was low and Jet had to make adjustments. Again, we’re glad to see that Jet adapted quickly – but it’s shiny, new way of looking at retail and its hope to create a new relationship with customers has already been turned upside down.Jet has killed the membership fee and says it isn’t making money on transactions. Except for its start-up capital, what revenue streams is Jet counting on? How is it following through on its promise to expose hidden costs to benefit consumers and suppliers? We don’t see it.Under these conditions, we wonder if Jet has positioned itself to soar to new heights. At this point, it seems destined to crash.~ Dana E. Neuts, Subscription Insider