by Fred Dimyan
Jet.com started on-line this spring as a membership-based retail site, $50 annual membership fee. Jet.com's goal is to capture bigger orders on-line, being compared by some to Costco. Viewing an example on-line purchase, the customer first enters their zip code, then as they add more products to their market basket, incentives to buy even more add up for products actually located in warehouses near them. Jet.com has adjusted its business model to drop the annual fee and compete on pricing. Jet recently brought Haywire.com a 14 year old online furniture retailer for 90m.
Jet.com has an evolving business model; a changing strategy. Forbes recently questioned the Haywire acquisition depletion of Jet.com cash reserves, given that Jet.com does not expect to be profitable for years to come. Jet.com wants to be the Costco of the internet. There is already a Costco of the Internet, Costco.com, which is backed by a well run, profitable company. Costco.com along with other retailers is having a tough time competing with Amazon, the odds that Jet.com can overtake a Costco.com is slim, the odds that they can overtake Amazon is much slimmer.
Amazon is a fierce competitor, and has a massive infrastructure in place that is a very high barrier for a competitor like Jet.com to compete:
- The Web's largest Affiliates program
- Deep Vendor Relationships
- 300m Registered users (38% of US Households have Amazon Prime).
- Technical prowess with AWS
- Amazon products: Kindle, Echo, Amazon Basics Products, 7 clothing brands, etc.
- The most sophisticated distribution and warehousing system in the world. Amazon is 6% of UPS revenue, USPS delivers for them on Sundays and they are purchasing planes and testing drones.
Jet.com founders success in competing against Amazon was limited and only until they Amazon decided to reduce pricing to beat them. Once they were Amazon's radar, Amazon reduced pricing and immediately took market share away. Walmart bid to buy the struggling company Mark Lore was successful in selling diapers.com to Amazon, which Amazon did to get them away from their rival Walmart. Competing against Amazon is tough for all retailers, including the retailing giant Walmart... Walmart.com is 1/8 if the size of Amazon. I would expect the struggles of Jet.com to be greater than other online retailer that have been unable to compete successfully against Amazon.