> 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.
> As a result, Jet had an overall loss of $242.91 on the 12 items. Mr. Lore says the loss is unusually large, partly because the items’ cost was low relative to shipping charges.
Wow. They must be playing a long game.
Can anyone explain how they expect to get that money back?
If you charge less than you pay for you should go out of business, not raise more money. Giving money to a negative retailer is gambling not investment.
[1] http://seekingalpha.com/article/3017856-amazons-profitable-r...
So, good luck I guess. Competition is good, but they've got a pretty steep hill ahead of them.
Marc Lore's a good bet for this particular market. He's already built a successful e-commerce company from scratch and sold it to Amazon. It appears that his plan for Jet.com is to tailor prices for each individual shopper in real-time, effectively targeting a profit margin of 0%. People in the US are familiar with the Costco/Sam's Club retail model (i.e. where you pay a membership fee to access discounted prices), and real-time, personalised pricing is incredibly powerful. You get to price off an individually-defined demand curve for each customer, and if people get familiar/comfortable with discounts that are applied to a shopping basket, rather than individual items, you reduce the competitive impact of a low price advertised by your competitor.
Also, it looks like Jet.com plans to operate as a marketplace as well as a traditional e-commerce company: https://developer.jet.com/getting-started
Remember this at the next bailout. http://www.cheatsheet.com/business/stock-news/3-reasons-the-...
The money actually being used to fund this black hole is coming from large institutions that trust the judgment of the VCs and usually have no say in the funds' investment decisions. Tech valuations are only high at the moment because there is currently an imbalance of investment capital chasing private tech deals. One sure way to correct that imbalance is for VCs to betray the confidence that institutions are placing in their judgment by blowing hundreds of millions of dollars in massive, obvious blunders like this.
However, I disagree on the price bit. Their selection isnt as large as amazon yet but I have found them to be 5%-15% cheaper on all items that they do have.
It concerns me a little bit that they're losing money on each order - that's fine if they plan to have the same discounts at scale, and are just testing, but if they are just using low prices to get people to join, it seems troubling.
This is a great example of trying to get too big too fast without even testing the business model.
