Who is Jet.com out to kill?

Last week, Jet.com, a new retail outlet created by the founder of diapers.com was launched. It basically offers many household staples for very low prices and what is more, the more you buy, the lower the price goes. The idea is similar to Costco or Sam’s Club. Jet.com asks members to pay $50 per year and then guarantees low prices. What is more, it will refund your membership (pro rata) if you don’t get $50 in savings. It is well funded to the tune of $250 million so this is a serious endeavour.

Curiously, the commentary on Jet.com has all been about whether it will beat Amazon. Take, for instance, the New Yorker:

The site’s design is somewhat simpler than Amazon’s, dominated, when I visited, by a small number of shopping categories—household essentials, gadgets, and the like—as well as the color purple. But Amazon’s influence is evident. The Jet logo, whose “J” is shaped like a smiley face, recalls the curved arrow on Amazon boxes, and each item offers a price comparison with Amazon. The first item displayed, Tide Pods laundry detergent, was listed for seventeen dollars and ten cents, the same price as Amazon. But when I increased the size of my order, the price on Jet started to decrease; by ordering four packages, I could save nearly five dollars. “There’s this huge middle class of people that are going to be spending more and more dollars online, and for them it’s going to be all about price,” Lore has said.

However, while Amazon does, of course, compete in this space, its business model is dramatically different in that it emphasizes variety in addition to low prices. Amazon’s prices are invariably low but a savvy shopper can save a few more bucks if they try.

But this whole notion that Jet.com is really a threat to Amazon is strange. This is not because Amazon won’t be impacted. It will but only on the lowest margin goods. And this is not because Amazon may not react aggressively; it has done so before but then again, despite finally earning some sort of profit, it is not as if it has room to move. Instead, it seems obvious to me that if Jet.com is modelled on Costco and Sam’s Club, then it is they that are its competitive rivals. After all, while I can imagine a Jet.com subscriber also paying for Amazon Prime, I can’t imagine one also paying for Costco. After all, going to Costco is no picnic and if Jet.com can deliver the prices and benefits (it offers discounts to a myriad of other retailers online), then why would you go to a Costco again and fight the long queues on a Saturday morning?

Retailing in the physical world has never been dominated, in most localities, by a single firm. There has been plenty of worry about chains and such taking over. But history tells us that there are always a few large players and, in general, they compete aggressively with one another and all survive — at least for a time. This is as close to a natural oligopoly as you get.

There does not seem to be any reason why this can’t translate to the online world. Why would we expect one big retail winner online? We didn’t get it offline and customer demand is still diverse enough that different business models will appeal to different segments. Yes, there are no retail outlets but there is still distribution and logistics and plenty of suppliers who won’t want to end up with a monopoly facing the consumer.

This tells me that Jet.com is playing for one of the slots rather than against Amazon per se. But for Costco and Sam’s Club, this is a significant threat. And if you need convincing then watch this video.