MONTCLAIR, N.J. — Marc Lore learned plenty during the six-year rocket ride of building his last startup, Quidsi, into a booming e-commerce business that Amazon bought in 2011 for more than a half-billion dollars.
Most important, Lore says, was the lesson in what customers really want out of online shopping. With Quidsi’s fleet of shopping sites, which included , he was intensely focused on providing impeccable customer service and speedy delivery. Rock-bottom prices, however, weren’t a company priority. He believes that’s the reason only one of five people who shopped on ever returned.
“That was the big realization,” Lore, 43, says. “Price is still king.”
That’s why his new e-commerce site, Jet, is making shoppers an ambitious and potentially industry-shaking pledge: It promises the lowest prices online. That’s right. Lower than Wal-Mart. Lower than Amazon.
Jet believes it can undercut its Goliath-size rivals on price through an innovative business model. The prices you see on Jet change in real time based on the combination of items you’re buying. As you fill your basket, Jet’s technology — created largely by engineers who have built financial trading systems — is constantly recalculating which seller can send that entire order to you most efficiently and cheaply, and it prices each item accordingly.
Jet is betting that the key to its success will not simply be luring online shoppers away from value-conscious rivals, instead, it will soon launch a year-long, $100 million marketing blitz to convert the legions of Americans who don’t often buy online — older millennials. Think young moms who are digital natives, yes, but are probably still most likely to pack the baby into the minivan for errands and stock up at the suburban big-box store.
Jet believes many of these shoppers are not doing much online because the prices are not enticing enough. Indeed, lest you think that the shift to online shopping is a tidal wave that has already crested, think again: Just 8 percent of retail sales happen online, according to the Commerce Department.
The startup has no shortage of early believers: As of February it had received $220 million in venture funding, among the largest seed or early-stage funding rounds in the past two decades. About 350,000 people have signed up for early access to shop on the site. Many of these Jet Insiders gained entry last week. A release to the general public is planned for later in the spring.
“What’s going to be tough is that if they don’t have remarkably cheaper prices, it’s going to be so hard to get that consumer to switch away from Amazon, or even Costco,” said Sucharita Mulpuru, an e-commerce analyst at Forrester Research.
Jet’s business model blends aspects of Costco and Amazon.
The e-commerce site plans to make all of its profit off its $50 annual membership fee, which, much like at warehouse clubs, will buy shoppers access to its low prices.
While Amazon has its vast network of distribution centers, Jet itself is stocking only a limited number of loss-leader items such as diapers and deodorant. For the rest of its inventory, it’s fast building a roster of retailers: It set out to sign up 50 for the launch; it has 1,300.
Once you’re signed up, Lore says, Jet will be “actually steering you toward building a more efficient basket” as you work down your shopping list. The steering starts with your ZIP code and keeps recalculating with every item you buy.
For example, let’s say you first add a roll of paper towels. Next, when you look to add soap, Jet will price that soap in real time based on what’s in your basket. It will offer you the lowest price on soap that is in the same inventory pool (i.e., in the same warehouse) as your paper towels. That makes for efficient shipping for the seller and, in turn, allows the seller to give you a better deal.
It’s a strategy that takes into account a mantra frequently heard from supply-chain experts: Free shipping is never really free. It costs retailers millions to ship you goods, so they work that into the prices of their merchandise. Lore says Jet’s setup allows him to attack price in a more effective way:
While consumers and retailers typically think of price on an item-by-item basis, he believes deeper savings come by minimizing the logistical costs of delivering an entire basket.
In this way, Jet is very much not like Amazon, which has spent years encouraging you to fire off an order for, say, a single paperback book or a pair of toenail clippers on a whim — and maybe another order five minutes after the first just because it occurred to you. With Amazon Prime, the logic goes, shipping is free, so why bother holding off for a big order?
On Jet, if you waive the ability to do a free return, you get more savings. If you pay with a debit card instead of certain credit cards, your total notches even lower.
“The transparency is what may allow it to get a hook in the marketplace — by being so transparent about how to lower the price and making it less smoke and mirrors,” said Virginia Morris, vice president of global consumer and innovation strategy at the consultancy Daymon Worldwide.
Scott Galloway, a professor who teaches marketing and branding at New York University’s Stern School of Business, said he is skeptical that Jet’s pure e-commerce model can result in a viable business.
“I think [Jet] is a retailer designed by a consultant that makes sense in theory and has trouble in execution,” Galloway said.
As for contending with Amazon, Jet will emphasize that membership gets consumers access to low prices, not to on-demand services such as same-day or one-hour delivery.
Jet “is very focused on value at its core, as opposed to speed,” said Liza Landsman, its chief marketing officer. “That is just a different center of gravity for consumers.”
