Jet.com: Dropping Membership Fee, Will Volume Pricing Be Low Enough?

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Update October 2015. CEO Marc Lore just announced that Jet is dropping its membership fee for everyone. They’ve only been live for a few months, so most customers are still on a free trial anyway.

This was surprising for many because Jet was supposed to be following the “Costco model” – sell you things at thin profit margins and make their money on the $50 annual membership fee. However, recall that Costco also makes a lot of money on Executive members who earn 2% back on all purchases. If you spend over $5,500 a year at Costco, you effectively don’t pay any membership fee. The margins are thin, but the numbers still work for Costco if you spend enough.

Jet has a “Smart Cart” feature that lowers your unit pricing based on volume and shipping efficiency, so the goal appears to be to encourage high-volume shopping. I’ve read reports that the average Amazon Prime customer spends about $1,000 a year at Amazon. Is that enough? Shrug, I’ll leave the profitability issue to their management and investors.

Jet does have good prices on some things, so depending on what you like to buy they may save you some money. Get $10 off your first order of $35+ with code TENBUCKSNOW. Even better, the competition is forcing Amazon to lower their prices, so you can benefit without ever shopping at Jet. Let some of that venture capital flow into your wallet. 🙂

Original post from July 2015:

Jet.com has officially launched its attempt to bring the Costco model to online shopping. That is, they plan on selling you things at near-zero profit margins and make their money on the annual $49.99 membership fee. The more stuff you add your cart, the lower the total cost. The more you buy from the same warehouse, the lower your total cost. Free shipping on orders of $35 or more.

This supposedly means prices that are 10% to 15% lower than Amazon on average, even listing the Amazon price right on their page for instant comparisons. How they show savings is a little confusing… things make more sense after adding it to your cart.

For example, this pack of toilet paper shows $21.05, the same price as Amazon. But I can save $9.06 by actually adding it to my cart, which brings the actual price to $11.99, much cheaper than Amazon. If I buy *two* packs, then my sub total is $42.10 which breaks the $35 barrier and gets me free shipping. But my actual total due is only $22.74, less than $35. Confusing, but hey it works out in my favor so I’m cool with it.

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However, this model only works at a certain scale, and this WSJ article points out that they are often buying stuff from other competitors when they don’t have the item in their own inventory:

The Hoboken, N.J., company is absorbing steep losses on many orders filled as part of a trial run that began in March, largely because Jet hasn’t signed up enough partner merchants or opened enough warehouses to directly sell much of the merchandise shown on its website.

When a Jet customer buys items that aren’t in its inventory or available from partner merchants, a Jet employee buys the items from another website and has them shipped directly to the customer. That is expensive for Jet because the company often pays high shipping costs plus any difference between its advertised price and the amount charged by the outside website.

For example, The Wall Street Journal recently bought 22 items from Jet. Twelve were shipped to the Journal by retailers such as Wal-Mart Stores Inc., J.C. Penney Co. and Nordstrom Inc., according to sales receipts.

Jet’s prices for the same 12 items added up to $275.55, an average discount of about 11% from the prices Jet paid for those items on other retailers’ websites. Jet’s total cost, which also includes estimated shipping and taxes, was $518.46.

So in other words, the 11% pricing discount above is not due to an awesome business model yet. They are being artificially suppressed with investor money. Now, spending venture capital funds in the search for rapid growth is common for internet start-ups, but I don’t remember any of my early Amazon orders coming in a Barnes & Noble box.

As a consumer, I suppose the best thing to do is simply enjoy the loss-leader savings during your free trial and then decide if it’s worth $50 a year. Costco is highly profitable but even they offer their $4.99 rotisserie chickens as a loss-leader, missing out on $40 million a year in order to keep people coming in the door.

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Comments

  1. I checked out Jet when they finally invited me to log in a month or so ago. I was underwhelmed by the prices on the few items I checked (my local Wegmans was much cheaper, Amazon was also cheaper). They didn’t have a price comparison tool then – or if they did I totally overlooked it.

    I’ll be happy to use them if they can beat grocery store prices for staples, but I’ve yet to see it consistently on any online store. There’s a convenience factor of ordering online, but it’s not really more convenient than just stocking up on 6 months’ worth of things like paper towels while I’m already picking up vegetables.

    • In playing around with it now again, it looks like a great service for getting Amazon coupons. Lots of items are Amazon Price + coupon, so I guess I can save money that way. I give up prime shipping, Amazon customer service, and ease of delivery. Not sure there’s much benefit.

      Amazon prices aren’t a great thing to try to beat for grocery items as Udo mentioned. They can be absurdly expensive (5-10 times) local grocery store prices for a LOT of items.

  2. Jet.com is much more expensive than my local Walmart. They may beat Amazon prices on groceries, but that’s no big feat. For example, snack packs that cost $1.00 at Walmart cost $3.57 on Jet. That’s almost four times as expensive. Their selection is also much more limited than Walmart. For example, although Chlorox bleach costs $3.75 on Jet and $3.84 at Walmart, Walmart has its own ‘Great Value’ brand at $2.94 – much cheaper.
    So far, I see no value in buying at Jet, even if there was no fee.

    • Brankar says:

      We all subsidize walmart’s low prices as they underpay their staff and point them to government assistance as corporate policy. A predatory model for dealing with vendors results in many companies being driven to bankruptcy or essentially corporate slavery after vendors agree to do business with walmart. As a company walmart threw out the book on corporate ethics.

  3. I think they are going to burn through their cash and either have to change their business model (raise prices/charge for shipping) or go away, depending on the scale they can build in the first year or so.

  4. Did any else catch the 1 year free membership?
    Use Promo Code: curisma

  5. I don’t have enough interest and time to search a website and comparison shop on things I need every few months, like toilet paper. I just look at deal sites and if it lists TP for sale somewhere, I buy it. I figure it’s a good enough deal and it usually is to within a few cents per roll.

    I managed to score a free lifetime membership because of referrals but honestly, not sure how much life Jet will have if it’s burning through VC money buying stuff at a loss to ship out orders. Feels very internet bubble-ish business practices.

  6. I’ve looked at Jet a few times during the beta period over the last month or so. And everytime I was really disappointed. I didn’t see a single item worth buying. Granted I was mostly looking at the technology / electronics category. Every item seemed very over-priced, sometimes 2-3 times normal market prices, plus the selection of items available was rather poor. Maybe I’ll give it another look, but thus far not impressed.

  7. I picked up some toilet paper, gum and popchips. I’m happy with it. I’m surprised people think grocery stores are cheaper. In the case of gum, it’s like $0.30 a pack instead of $1.00

  8. BTW, I would never pay for the membership to this site. I wonder how many others will stop using the service after the free trial is up.

  9. Man does Costco sure get my foot through the door with their rotisserie chicken! My favorite is their 8 piece rotisserie chicken leg & thighs box for $5. Absolutely. Insane.

    Anyway, I signed up for the Jet trial a while back through your invitation link, and have been enjoying my free trial so far. I recently got an email from Jet saying that they were giving me another free 6 months. Did you get that email too?

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