Jet, the pure-play e-commerce retailer that launched in July promising the lowest prices on the web, has raised a $500 million round of funding led by Fidelity, Fortune reports.
The infusion will help the company avoid running out of money by the end of the year, according to number-crunching by the Wall Street Journal.
Jet launched this summer with a Costco-like model, saying its profits would come from annual membership fees rather than sales, but last month ditched that approach in order to attract more shoppers.
While e-commerce growth is still outpacing retail growth overall, Jet’s experience in the last few months is an example of just how tough e-commerce actually is in practice.
While the company thought it could take a page from Costco’s successful model, paring down prices to the bone and relying on membership fees, it’s found that lacking—perhaps because Costco’s physical stores also invite browsing and additional sales, unplanned by the consumer wandering about the store, that is still difficult to replicate on the web.
And the company may not be zeroing in very well on just who its customer is, yet has spent a lot of cash on marketing efforts.
“It’s incredibly expensive to go on a media blitz that they have since they’ve launched,” Profitero VP of strategy and insights Keith Anderson told Retail Dive. “They seem to be trying to convert new shoppers to be online shoppers, which I find to be a risky gamble. They’re interested in the household that values money more than time…it’s such a precise segment of shoppers that they hope exists.”
The retailer’s marketing campaign was heavy in metropolitan areas, for example. Yet, if Jet really is trying to lure new shoppers online, they might be more easily found in more rural areas, where consumers are likely to have a habit of, say, shopping at Wal-Mart stores.