Costco-meets-Amazon company Jet.com launches
Comment of the Day

July 21 2015

Commentary by Eoin Treacy

Costco-meets-Amazon company Jet.com launches

This article from CNNMoney highlights how high the barrier to entry has become in online retail. Here is a section: 

As a way to prove its marketing promise, Jet tested its service with some customers who were given early access by showing its prices against those found on multiple competing websites. While Amazon often has the lowest prices, it doesn’t always. Sometimes the differences were as big as $15.

“We have an assortment that’s vast like Amazon’s, and pricing that’s similar to a wholesale store and membership”, Lore told CNNMoney. Forbes explained in February, “Though the company has yet to launch, it has gained a large amount of attention, namely due to the previous success of Lore, who created Quidsi and sold it to Amazon.com in 2010 for $550 million”. That’s slightly less than a Costco membership, and half the price of Amazon Prime. “Because Jet’s business model is to only profit from membership fees, not from the products we sell, all cost savings are passed back to the customer”.

Eoin Treacy's view

On first inspection Jet.com appears similar to other online retail sites such as Boxed.com, but its focus on membership fees as a source of profits and Alibaba’s investment suggest it may be able to survive in the event competitors such as Amazon or Costco engage in a price war. Its partnerships with larger number of additional companies offering rebates for goods purchased on sites such as Apple, Burberry, 23andMe and hundreds of others represent an attractive reason to visit the site. 

Alibaba has so far had mixed success with its forays outside China not least because of issues with counterfeit goods, long delays in shipping and poor customer service. The share has been ranging mostly between $80 and $90 since February and has steadied in the region of the lower boundary. A sustained move above $90 is the minimum required to signal a return to demand dominance. 

Amazon is somewhat overextended as it tests the psychological $500 area so there is room for some consolidation following this month’s impressive rally to date. 

Costco bounced last week from the region of the 200-day MA and a sustained move below $135 would be required to question the consistency of the medium-term uptrend.

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