Jet.com debuted this week, but it almost seemed that the much anticipated launch would go unnoticed. Maybe because last week all that was on anyone's mind was Amazon Prime Day.
Let's face it, Amazon did a wonderful job of stealing Jet's thunder. The day brought in record profits for Amazon, selling 18 percent more than during Black Friday 2014, and showed the world once and for all that the e-commerce giant was a force to be reckoned with.
Cue Jet.com, ready to steal back some thunder. Perhaps the first retailer to pose a real threat to the king of e-commerce, analysts, data collectors, retail consultants and just curious shoppers were logging on to Jet.com Tuesday morning to see what the hype was all about. For the average consumer, the obvious price comparisons were there, in plain sight. Across the top of every product page, Jet listed its own prices side-by-side with Amazon prices. And below each Jet listing, the magic number of how much the consumer could save.
When Jet CEO Mark Lore sold one of his most successful companies, Diapers.com, to Amazon in 2010, he started this new venture, which has raised about $220 million thus far, CNNMoney reported. At the time of launch, Jet had a considerably smaller inventory than Amazon, about 10 million items. But the perks include a membership almost half the cost of Prime, $50 a year, a rewards program and cheaper pricing on many products. Where it stands to fall short is that free shipping and returns are only free to those that spend over $35.
"Our platform is engineered more like a financial trading system than a traditional e-commerce marketplace," Lore said. "Because Jet's business model is to only profit from membership fees, not from the products we sell, all cost savings are passed back to the customer."
Boomerang Commerce was running early numbers on Tuesday, comparing products on Jet versus Amazon. In most categories, a large percentage of Jet products were cheaper than the ones being sold on Amazon. For instance, 83 percent of electronics and cell phones sold on Amazon were listed at a lower price on Jet. As many as 74 percent of Jet's computer products were less expensive, 84 percent of sporting and outdoors goods, and 84 percent of Jet's products in the home category. The list goes on, ranging in everything from toys and games to personal care.
But what does it all mean for the consumer and the retailer?
According to Guru Hariharan, CEO of Boomerang Commerce, a shakeup of U.S. retail as we know it. He believes Jet's new marketplace could change the way all retail operates, from brick-and-mortar to omnichannel.
Hariharan noted that early on he's observed that Jet is exploring some "interesting pockets of profitable growth." In other words, unlike most retailers that focus on gross margin, Jet is introducing practices such as contribution margins into their pricing model.
"There's this nuance of how, if you are able to optimize your prices based on contribution margin, you can bring out a lot of pockets of opportunity such as waiving the right to return and buying in bulk, which can save the retailers a lot of costs on the backend that they can pass onto consumers," Hariharan explained.
This is a very involved concept—not one a lot of traditional brick-and-mortar retailers use—mostly those on the cutting edge of e-commerce. This advanced way of pricing will eventually be played with amongst more retailers but for now, could give an edge to Jet.
Is this model too convoluted for the average consumer to understand?
For now, yes. The consumer is going to shop based on price and ease. As long as Jet can make the savings clear to online shoppers, they may have a fighting chance.
On the company's website, Jet's pricing model is described as so: "Jet's proprietary, dynamic pricing algorithm finds savings in real time and shows customers the items that bring down costs when bought together. Members also save by making choices that avoid costs normally baked into online retail prices." What this means to customers, again, may not be quite clear unless the dollar difference truly stands out.
"What is most interesting is what will be the fallout. How are other retailers going to react to this?" Hariharan asked. While he believes that it will take a while for brick-and-mortar retailers to react, Amazon has the scope and potential to react much more quickly and therefore, the affect will trickle down to retailers that sell on Amazon's marketplace already (and potentially Jet). For example, if Best Buy already price matches in-store for its customers with prices listed on Amazon, and Amazon shifts its prices to match Jet, then Best Buy is now competing with Jet on price.
This, according to Hariharan could mean a losing battle for some brick-and-mortar retailers.
At the end of the day, will Jet.com be a threat to Amazon?
Amazon has a massive selection unparalleled almost anywhere. Even amongst the Twitter gripes on Prime Day, what were seen as sub-par products still sold out. "Whatever the social outcry was, they made a ton of money," Hariharan said.
And where physical retailers do not carry products that are rarely purchased, Amazon does have the breadth of that inventory. And this weapon keeps Amazon on top...at least for now.
"At this stage, Jet is a drop in the bucket compared to Amazon," said Bruce Cohen, senior partner of the retail group at management consulting firm Kurt Salmon. "Further, Amazon is moving more toward offering unique value-added benefits to its user that help strengthen the Amazon ecosystem. They don't need to focus on every penny of savings on consumers' core goods purchases. Instead, they're maintaining their core offering of consumer goods at great prices, but branching into music and video, and even exclusive content now with Amazon Studios.
"With Amazon Prime, they are focused on strengthening the network with members and providing even more benefits through exclusive offers and events such as Prime Day. That's a huge competitive advantage that Jet isn't yet prepared to match, but will have to compete against if it wants to play on the same field as Amazon."
What will it take to get consumers to start shopping on Jet over Amazon Prime?
"What differentiates Jet.com is that it offers several incentives not offered by other major e-commerce players," said Natalie Kotlyar, partner in the consumer business practice at BDO USA. "The key to truly compete in this space is to offer infinite product availability, solid execution and price consistency. If a consumer can't rely on Jet.com to meet their array of shopping needs—or if prices vary each time they place an order—it could be tough to win them over.
"At this point, major e-commerce players, such as Amazon, have a very loyal customer base, partly because they are the leader when it comes to delivery and product availability, and that will be difficult to rival. Ultimately, it may take consumers some time to warm up to Jet.com, but its pricing and its other incentives will certainly help kickstart the process."
According to Cohen, Jet is going after a core consumer that believes price is the single most important purchasing decision. When we break down that specific segment of the market—online shoppers for whom price matters the most—it will be fairly narrow.
"It's too soon to tell, but what you are likely to see is a lot of early testing by consumers, some of whom may not yet be Amazon Prime members and some of whom will be willing to pay for both Prime and Jet membership at the same time," Cohen said. "In the end, you may find that Jet and Amazon can coexist in the market, with each reaching a different consumer demographic, based on where their offering is focused."
Perhaps July 2015 will one day go down as a very important turning point for the direction of retail. What will you remember...the first Prime Day or the launch of Jet.com? -Jacqueline