Jet.com launches Tuesday with a shopping experience that it hopes will be on par with Amazon’s.
To do so, the Hoboken, N.J.-based company wanted to have a huge selection of items — but in order to accomplish that in a relatively short period of time, it had to cut some corners. And because of that, it has built an e-commerce operation that is very expensive to run and may even confuse some of its customers.
Take my last order from Jet.com as an example.
I’m a Jet.com beta user, and on Wednesday, I ordered seven items from Jet.com, including mostly household cleaners, two kids’ toys and a box of vitamins. Nearly all of those items shipped directly from Jet.com and arrived on my doorstep the next day in a purple box emblazoned with the Jet logo.
The next day, I received a generic brown box with my remaining items. But there wasn’t much to indicate it was from Jet.com. Rather, a shipping label inside was from drugstore.com. I did a double-take … drugstore.com? How?
But, sure enough, when I went back to double-check my email confirmations, Jet disclosed that a “Jet Concierge” found three of my items at drugstore.com. The Wall Street Journal reported today that it experienced the same thing during its tests. When a Jet customer buys items that aren’t in its inventory or available through partners on its marketplace, a Jet employee will find them on another website and have them shipped directly to the customer.
Inventive? Yes. A little unorthodox? Definitely.
But this tactic is also extremely expensive because Jet often pays high shipping costs to get the package to the customer quickly. Plus, it often marks the cost down below what other websites are willing to charge.
In my case, the prices on Jet.com and drugstore.com were totally different. On Jet.com, I paid $28.50 for the three items. When I conducted the same search on drugstore.com, the order would have totaled $41.90, or $13.40 more for the same items (although it did qualify for free shipping). The vitamins were discounted the most, costing me $20.73 for 120 tablets on Jet.com and $30.97 on drugstore.com.
The WSJ had a similar experience. Of 22 items it ordered from Jet.com, a dozen were fulfilled by a Jet Concierge on a competing website. As a result, Jet paid a total of $518.46, or nearly twice as much as it charged its own customer. According to the WSJ, some of the items came from retailers such as Wal-Mart, J.C. Penney and Nordstrom.
The WSJ reports that Jet is no longer placing orders at Nordstrom.com after the Seattle department store asked Jet.com to stop. A Nordstrom spokesman did not reply to emails seeking more information. Obviously, in addition to being an unorthodox experience for customers, it could also ruffle the feathers of other retailers, especially since Jet.com is typically offering lower prices.
When I originally reviewed on Jet.com in May, I found that the lack of inventory was one of the site’s main challenges. But still, this is a very expensive strategy at trying to match Amazon’s depth.
Jet.com was founded by Marc Lore, who previously co-founded and sold Diapers.com to Amazon for about $550 million. Unlike Jet.com, Diapers.com was never the low-cost leader, but instead focused on offering superior customer service to moms. Prior to acquiring the company, Amazon was known for slashing the price of diapers to compete with the company.
In this case, Lore is obviously trying to be the low-cost alternative to Amazon, so how exactly Amazon will guard against Lore again this time is unclear. But if there’s one thing for certain, it is that Jet’s tactics will be extremely expensive. Lore told the WSJ that it will invest as much as $300 million over five years for Jet’s “concierge” service. Jet has already raised $225 million in capital and is in talks with investors to raise hundreds of millions by year-end.
One way to cut costs will be to add more inventory to its website organically or through partners. As of Sunday, Jet had 4.5 million products, and it expects the number to hit 10 million by the end of this week. At its launch, Jet will fulfill about one-third of customer orders itself, with another third handled by partner merchants and the rest by Jet’s concierge service.