This story appears in the July 2015 issue of Entrepreneur. Subscribe »
In today’s frenzied internet marketplace, small retailers can go it alone online and fight to be noticed by web users or can join up with the Amazons of the world and give up control over customer experience. But this summer a fresh online play, Jet, is offering another way to sell goods online.
“I want to open the economics of the shopping club to small businesses,” says Marc Lore, founder of Hoboken, N.J.-based Jet.
Lore’s company has combined the killer pricing of clubs such as Costco with the vast marketplaces of eBay and Amazon and married them to an innovative software program that saves money for consumers by slashing logistics costs.
“We charge a $50 fee for each customer to join Jet,” he says. “And we’ll make our living from that fee.”
Because Jet won’t be taking a cut on each sale, its vendors can offer some of the lowest prices on the web, while still maintaining profitability. For consumers, the opportunity to save even more comes whenever they add items to their online shopping cart—say, a couple of DVDs, cat food and running shoes. They’ll notice that the prices for that particular basket of goods will change depending on how efficiently Jet’s retail partners can fulfill the order.
As Lore explains it, if a shopper in New York buys a baseball and bat, Jet’s proprietary software will sniff out the most cost-effective retailer—for example, one with a warehouse in New Jersey—to fill the order and instantly pass those savings on to shoppers by lowering the products’ sale price.
“But if they want a baseball mitt, too, and that specific glove is in a different retailer’s warehouse in California somewhere, the software will catch that the California vendor can also send the ball and bat, and will consolidate the order out of California to get the best price,” he says. Lore’s big bet is that Jet’s pricing transparency will create smarter shoppers—and boost vendors’ sales.
Lore’s history with online retail has people listening. Back in 2010, he sold Quidsi, the company behind Diapers.com, to Amazon for more than $500 million. To get Jet off the ground, he raised $220 million from Bain Capital and Goldman Sachs.
But not everyone believes Jet will fly. David Herberich, a senior director at San Francisco-based data analytics firm BeyondCore, who has built retail pricing tools for Sears and others, warns it won’t be easy to find the accurate supply-chain information from the thousands of vendors Jet needs to set reliable prices. And that opens the very real risk of selling goods at a loss. “Jet may have access to all the data in the world,” he says. “The question is how well they can handle it.”
Lore acknowledges that what Jet is attempting is not easy, and there will be hiccups along the way. “Let’s face it,” he says, “the computational power to pull this off did not exist even a few years ago.”
That’s where he sees opportunity, though, as do the more than 350,000 customers who have signed on since November to test Jet out. Lore is banking that millions more will want to buy through Jet and welcome the transparency he aims to bring to e-tailing.
“I think transparency is empowering,” he says, “for merchants, consumers and investors.”