Startup Jet.com bets that shoppers will trade in the convenience of fast shipping for lower everyday prices. The big question: how will Amazon respond. Fred Katayama reports.
A brash online startup with lots of cash is going head-to-head with titans Amazon.com and Costco. Jet.com launched its shopping site Tuesday. What sets it apart: rock bottom warehouse-like prices - 10 to 15 percent lower than anywhere else, its CEO says. It's betting that customers will trade in the convenience of fast shipping offered by Amazon for lower everyday prices. And it's betting they'll be willing to pay $50 in annual membership fees like Costco. The more you buy, the less you pay. And customers save more if they waive their right to return orders or pay by debit card. Orders $35 or more get free delivery. Jet.com has raised a whopping $225 million in capital, according to the Wall Street Journal. But is its business model sustainable? It makes money only off membership fees. For items ordered that are not in its inventory, Jet.com goes out and buy them from another website and has those goods shipped directly to the customer. The Journal says Jet.com takes a huge loss in doing so. Morningstar analyst R.J. Hottovy said, "Amazon has done a great job locking in consumers. What Jet has is intriguing but do they have the product assortment yet is the big question." Wall Street will watch to see how amazon responds. Jet.com's founder, Marc Lore, also founded the company that sold diapers at cheaper prices than Amazon. When Amazon fought back by dropping prices, he eventually sold that company ... to Amazon.