Online department store Jet.com is now available to American customers. It aspires to compete with Amazon and hopes to reach 20 billion dollars (18 billion euro) in turnover by 2020.
Lower prices and bigger losses
Customers can only shop on Jet.com if they pay a 50 dollar yearly subscription fee. In return for that money, the site promises lower prices than on Amazon. Even before the website launched, some 100,000 people had subscribed for a trial period, but Jet.com aims to get 15 million paying subscribers by 2020, which should bring in 750 million dollars (700 million euro) in revenue.
Lower prices and marketing costs mean that Jet.com will most likely compound heavy losses in its first few years, but it has still managed to raise 225 million dollars (200 million euro) prior to its launch. It is currently valued at 600 million dollars (550 million euro), but with ongoing talks about more investments, its value could skyrocket up to 3 billion dollars (2.75 billion euro).
Lure customers away from Amazon
Currently, Jet.com still has to buy plenty of products through other retailers, with prices often higher than what it charges on its own website, which means it is currently taking a huge loss. Everything it cannot buy on its own or through its own partners, has to be bought elsewhere and priced down on the website. Jet.com loses most of its money on this so-called janitor service at the moment.
The expensive service (for Jet.com) is designed to lure away as many customers as possible from competitors like Amazon. Once that has been done, the company will try to limit losses by collaborating with an increasing number of partners. At launch, Jet.com already boasts several hundred partners, but it wants to boost that number up to 2,000 as soon as possible. That should help limit the use of its janitor service as much as possible, but until it manages to do so, the subscription fees are all the income it will generate. That income will be pretty much zero over the first 6 months as everyone gets a 6-month trial period anyway.