Marc Lore has a big ambition — nothing short of reinventing the world of e-commerce. And he has deep pockets to do it.
Lore has raised $220 million and linked with 700 retailers to launch Jet, a digital marketplace that’s a spin on the wholesale club model.
Jet charges members a $49.99 annual fee, but promises to cut costs for consumers and stores by squeezing efficiencies out of delivery, charging less, for instance, for orders that can be supplied from a single warehouse nearby.
“The technology looks more like a real-time trading system than it does an e-commerce site,” said Lore, who is the company’s founder and chief executive officer.
Jet takes into account where a customer lives, how many items are being ordered and how the items can be shipped most cost-effectively. In the process, Jet looks to cut prices to consumers by 10 to 15 percent versus competitors.
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For instance, if a shopper orders a pair of jeans and tinted moisturizer through one of Jet’s retail partners, the overall price for the goods will be lower if they can be fulfilled from nearby distribution centers. And if the items can be shipped together, the price drops further. Consumers will get their first official taste of that process this week as the site goes live to the broader public.
Jet is a big idea and one that requires big volume to pull off.
Lore hopes all the funding he’s raised will solve the chicken-and-egg problem of e-commerce profitability. Companies with scale have fixed overhead of about 2 percent of revenues, while smaller start-ups pay out 20 percent of their revenues to keep the lights on, Lore pointed out.
“U.S. e-commerce is expected to be over $1.2 trillion by 2030. Today it’s $300 billion…[and] we’ve seen the mass merchants growing at two times the speed of the market,” Lore said. “There is a big advantage to scale in e-commerce. We’re one of the few companies that will have access to the capital to get us to that scale to compete.”
For Lore, “scale” means building a platform that allows merchants to log $20 billion in revenues — and the goal is to hit that number by 2020.
About 450,000 people tested the site in beta and the top categories were electronics and everyday essentials. Apparel and jewelry account for roughly 15 percent of the goods available so far on Jet, with beauty making up another 10 percent. The site will carry more than 10 million products from 2,300 retailers and won’t make any revenue from discounting items on the site. Among the brands retailers sell on the marketplace are Aéropostale, Badgley Mischka, Billabong, Diane von Furstenberg and Rachel Roy.
Jet is also looking for ways to encourage shoppers to buy more. The Jet Anywhere feature, for instance, allows users to reap the benefits of being a member while still shopping retailers that don’t sell through the marketplace.
Jet members who shop at gap.com, for instance, get a percentage of what they spend credited to their Jet account in the form of JetCash. So for every $100 spent at the outside retailer’s site, the consumer gets five to 30 dollars in JetCash to spend on the marketplace. Seven hundred retailers participate in the Jet Anywhere program, including Macy’s Inc. and Lululemon Athletica Inc.
“The fundamental tenet is that we want to operate and offer a value proposition to the consumer today that assumes we have scale, so until we get scale, we will be financing the difference,” Lore said. “An income statement will show a loss for the year, but you will get a payoff down the line. In my mind, that is profitable.”
But transparency is a big part of Lore’s vision and investors and employees alike will know the state of the business. Company information is open to the staff through monthly town hall meetings and a corporate road-map calendar shows employees what’s going on company-wide. There are no offices, not even for Lore. “Everyone knows what everyone makes,” he said, describing the company’s salary structure. “All directors get paid the same, all associates, etc. There is no negotiation.”
He has commissioned an app, Jetstream, that investors and employees can download to see key Jet stats in real time, including when daily sales hit certain thresholds.
“The metrics are compared to plan and also their comp period. As a result, everyone has a real-time pulse check on where we are to the plan and our goals,” Lore said.
Jet just moved its 300 employees to a new 40,000-square-foot headquarters in Hoboken, N.J. The start-up phase is familiar territory for Lore, who cofounded Quidsi Inc., parent company of Diapers.com and Soap.com. Quidsi found itself in something of a price war with Amazon, which cut its price on some types of diapers by 30 percent. Lore sold Quidsi for $545 million to Amazon in 2011 and worked there for three years. Jet has raised funding from Bain Capital as well as Accel Partners. Lore said he plans to raise more by the end of the year. He “started talking to some people,” but noted future funding depends on how the launch goes. It’s been rumored that Alibaba has invested in the site, but Lore — in an un-transparent moment — declined to comment.