Jet.com's Marc Lore On Coexisting With Amazon And Why One-Hour Delivery Is Overrated
In 2010, Amazon.com AMZN -1.14% was squeezing Marc Lore and his company Quidsi. While his company’s sites like Diapers.com were being undercut on price and he was being outmaneuvered by Amazon CEO Jeff Bezos, Lore found himself in a corner. Eventually he conceded, selling Quidsi to its rival for $550 million and accepting a gig at the Seattle retailer that would last for more than two years.
A little more than four years later, Lore is back in the e-commerce game with a company that could provide his old employer with a few headaches. For a man that’s been put through the ringer by Amazon, he says that it’s nothing personal and there’s no animosity behind his decision. ”It’s just that I had this new innovation around price,” he tells FORBES in an interview.
That innovation is Jet.com, a new online marketplace that will look to offer millions of goods at the cheapest possible prices. It has $80 million in backing from the likes of Accel Partners and NEA and is set to launch later this month.
In some ways, Jet is looking to out-Amazon Amazon, sacrificing on margin to attract customers and gain market share. Taking a leaf out of Costco’s book, the company will charge users $50 a year for access, which will lead to about $150 in annual savings for shoppers, says Lore. Jet won’t make money off the transaction of goods, which will be provided by partners and online retailers including TigerDirect.com and Sony Store. Instead, the only revenue will come from membership fees, while all other savings will be transferred to customers on the price of their goods.
It’s a unique approach, and one that will certainly raise eyebrows. But with U.S. e-commerce at $300 billion last year and growing, Lore certainly thinks there is room for another player that can provide an alternative to Amazon’s dominance. Jet, which has is nearing 150,000 sign-ups for its free trial program, can “absolutely” coexist with Amazon, believes its CEO. Here’s hoping Amazon thinks the same.
Below is a shortened, edited version of my conversation with Jet.com CEO Marc Lore.
Forbes: Jet’s still yet to launch, but it’s generated an enormous amount of interest. Why?
Marc Lore: Jet is really a story on customer empowerment and transparency. The idea is about how do we empower customers by making the underlying economics of a transaction transparent? Supply chain costs like shipping and fulfillment represent a large percentage of a retailer’s costs in e-commerce. To date, those costs just average into all the transactions. The customer can’t benefit from choosing products that have lower supply chain costs.
Imagine having two things in your shopping cart like a bat and a ball. Now you search for a glove. If you just see the same price and all gloves are the same price, you’re not taking advantage of the fact that some gloves can ship together with the bat and ball in your basket and other gloves can’t. That needs to be reflected in the cost of the products you’re viewing.
We make transparent the payment costs. When you pay with a MasterCard or Visa or debit card, we make transparent the true costs that go into that. We make transparent the true cost it will take to return a product.
Are you guys going to be holding the inventory for the partners who have signed up?
No. We’re totally democratizing e-commerce. We’re leveraging all these inventory pools that exist out there today. Imagine how many locations in the U.S. Bose headsets reside [and those locations will send the product.] There’s going to be thousands of locations in the U.S. that have that headset.
So, if I wanted to buy that headset plus a set of speakers, it would be cheaper for it to ship from one store than from multiple?
Exactly. There’s a fixed shipping charge that’s typically $5 or $6 dollars whether you send one thing or four things. Four things may be $6.50. One thing may be $6. The incremental cost of adding things into the box is not that great.
Can you provide cost savings if you’re only buying one item, like a single pair of jeans?
Yes, we can. There’s two ways. First we charge and make all our money from memberships so everything else we sell is break-even. We don’t make any profit off of them, so any commission we get from a third-party merchant goes back into price. Second of all, we’ll try to find those jeans closer to you which bring down those supply chain costs. So it will be cheaper, even if it’s a one-off item.
But you guys are going to have warehouses for some items, right?
We are going to have warehouses, but only to ship consumables. The reason is that there’s no really marketplace sellers that sell consumables across category—like sellers that would sell dog food, toilet paper, groceries–all from the same warehouse. We’re supplementing the inventory supplies out there. So if you buy dog food, groceries, shampoo, it will call come from our supply centers and it will come fast in one to two days.
It looks like the trend for some of the larger companies is getting to one-hour delivery. Is that overplayed in your eyes?
Yes, I do. There’s certainly an audience of people that are willing to pay for fast delivery. But there’s no way to do it without doing it expensively. It is expensive to get product to somebody in an hour. It just is. Our view is that the market for the people that want to save money and be smart for how they buy a product is a much bigger opportunity. The next $300 billion that comes online isn’t going to be catering to people that more want to feel like smart shoppers.
So you’re not going after the Instacarts or the Amazons for one-hour delivery?
No.
Who are the consumers you’re going after? Are they the same people on Amazon Prime?
If you think about Amazon Prime and you look at the actual numbers, you’ll see that less than 10% of the market [use Prime for online shopping.] We’re certainly not looking to compete head-to-head with Prime. Prime is a great service and it offers an amazing value proposition for people that want to go buy one item at a time without having to pay shipping. But that’s not the market we’re going after. We’re going after the market for people that want to feel like they’re shopping smart and saving money.
Are you a Prime member?
Um, [laughs] I don’t really shop online. I don’t really do a lot of shopping in general.
Is that something for the other family members in your household to do?
[Laughs] Exactly.
So much has been made of your upcoming battle with Amazon. Quidsi competed with Amazon. You sold Quidsi to Amazon. You worked there for two years. Now you’re going back out and you’re competing again. Is that conflict overplayed? Is there any animosity toward Amazon?
There’s absolutely no animosity at all. I had a good time working there. Learned a lot. Met a lot of good people. I know the stories will try to position it that way.
So you see yourself coexisting?
Absolutely. Costco coexists with Wal-Mart just fine because the market is so massive. There’s room for a lot more players too, not just Jet. There’s $300 billion online and it’s growing to half a trillion soon. There’s plenty of room.
Jeff Bezos has cited Costco in the past as an inspiration in terms of making retail more efficient. Obviously the Costco story resonates with you too. What have you learned from Costco and how do you improve on that?
We learned the concept of what they did, specifically, how do we pull costs out of the system? They said, “O.K., we’re going to pull costs of the system by saying we’ll have big packaging. We’re going to have limited SKUs—3,000 SKUs, while Wal-Mart has 50,000 or 60,000. We’re going to leave stuff on the palettes. We’re going to sell out of our warehouse. And we won’t let you pay with Visa or MasterCard.” Then they said, “We’re not going to make a profit and we’re going to make a profit on membership.”
We’re taking that concept, but we’re doing it in a very different way. All the things I mentioned don’t work online. The primary cost offline is sort of like cutting SKUs. Online, it’s not about that because we have unlimited shelf space. What pulls costs out of the system is pulling supply chain costs like shipping, fulfillment and credit card fees.
All your revenue is going to be generated from membership fees, what’s the path to profitability in that kind of model?
If you take the Costco model, they do a similar sort of thing. They’ve created a $60 billion (market cap) company with a little over 55 million members in the U.S. They have almost 3% operating margins, so they do about $100 billion in revenue and earn about $3 billion or so in operating profit. Our operating margins will be similar to 3 to 3.5% range.
You’ve talked about raising up to $600 million. Is that the number you’re gunning for in order to be successful?
That was something that I said that was taken out of context. In order to build a really big business in e-commerce you’re going to need a lot of capital, but there’s no set amount of money. If you think about it, Amazon early on in its existence raised $1 billion.
You have $80 million in the bank, where does the next round of money come from?
We’re not raising money right now.
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