Online membership general retailer Jet launches today, amid much anticipation and buzz about another capital infusion that could value it at $3 billion.
Jet has focused on price and dynamic pricing, where customers can trim their final cart price by opting for slower delivery and other variables.
Trouble is already brewing for the company, though, with some retailers a bit alarmed that Jet is undercutting them on price and with reports that the e-commerce newcomer is losing money on most sales.
Jet has promised that it would have the lowest prices on the web; it’s made no bones about the fact that its revenue would be coming from membership fees and not from product sales. The retailer will need a tipping point of membership numbers and retail participation in order to get its toe into the black, which could mean years of patience.
But while the company has proven to be an investment-dollar magnet, worries are emerging that its model may not be sustainable.
Even founder-CEO Marc Lore’s comments on the investor enthusiasm about his brainchild reveal a sense that Wall Street is hungry for the next big e-commerce thing, and not necessarily particularly hungry about Jet’s setup itself.
"People want to put money to work,” Lore told the Wall Street Journal. “I get a call and people say: ‘Hey, can we talk?’ Yeah, I’ll listen.”
And Jet’s play to out-price Amazon may not faze the e-commerce giant, Shmuli Goldberg, director of marketing at price strategy firm Feedvisor.com, told Retail Dive. While Jet from the get-go has been all about "being the cheapest kid on the block," Goldberg says, that’s no longer Amazon’s turf.
“While this is a unique value proposition, it may not be enough to sway some of Amazon's larger customers,” Goldberg says. “Amazon [has] pushed their Prime offering hard and fast to customers, with the key message of delivering additional value to the forefront, instead of the cheapest prices.”
In the meantime, though, Goldberg says, that price competition could be great for consumers.
“Jet will no doubt be able to bring in bargain hunters, but with the Internet becoming less and less price sensitive, it's hard to predict how much of a draw just having the cheapest prices will be,” Goldberg told us. “Amazon's answer to this will be to play to its strengths. Instead of lowering prices to compete with Jet, it will continue to add value to its subscription-based Prime program, as we saw with Amazon Prime Day last week, to encourage customers to pay that little bit more for a superb customer experience and overall excellent service.”
Curious to know more about Jet? Read our deep dive on the company: Can Jet.com get liftoff?