A year ago, Jet.com launched its ecommerce business with a large amount of hype after getting hundreds of millions in funding and nearly $600 million valuation before selling a single product, reports Fortune.
Despite the solid start, the company faced several challenges this past year – forced to shift strategies, faced rumors of bleeding cash and turbulence with big brands. However, founder Marc Lore doesn’t seem fazed,
This has never been a winner takes all market. There will be a really large number 2, 3 and 4, Jet can be one of those.
According to Lore, Jet’s sales have tripled in the past six months. In December 2015, it sold $33 million in merchandise compared with $90 million in May.
Jet originally launched its membership based ecommerce site in July 2015 to take on brick and mortar warehouse clubs like Costco, while also competing against Amazon’s bulk products business. For a $50 annual membership, Jet members could buy diapers, cleaning supplies and sporting goods, 10-15% below anywhere else online. In October, Jet dropped its $50 membership fee – the only source of profit. However, the company said that customers were still happy with 5% discount, which also allowed Jet to make some profits from sales.
Another key differentiation from Amazon is Jet’s bet on dynamic pricing. This means that the price of items change depending on what shoppers buy. For example, if shoppers buy multiple items that are in different warehouses, they end up paying more because merchants spend more on packaging and shipping.
The company has also been quietly testing groceries delivery, testing the model in New York, New Jersey, Washington DC and Connecticut, where consumers can order milk, cereal and vegetables among other things. The reason for expanding into groceries, a low margin business, is because the model tends to draw repeat customers. Jet has also been committed to sourcing food that is harder to find such as Kosher food and gluten free items.
Jet is also planning to follow Amazon’s footsteps of producing its own products such as diapers and groceries.
Despite the optimism from Lore, there is still the question of how quickly Jet is burning cash, and when it will become profitable. Lore projects profitability in 2020, three and a half years from now. In November, Jet raised $618 million and plans to raise another round later this year. Sucharita Mulpuru, analyst at Forrester Research comments that it will take a lot of capital and experimentation to come close to Amazon’s scale.
They are so far behind Amazon, they are not even in the same playing field. – Sucharita Mulpuru, Analyst at Forrester Research.
Jet still needs more time to test out its business model. Fortunately for them, it seems to have the backing of deep pocketed investors for now. It also has no plans to expand as of now, unlike its much larger counterpart.
A version of this appeared in Fortune on July 22. Read the full version here.