Jet.com
The online retailer that took on Amazon on price, then was bought and shut down by Walmart
- Founded
- 2014
- Closed
- 2020
- Lifespan
- 6 years
- Total funding
- $820 million
- Peak valuation
- $1.3 billion
- Country
- United States
- City
- Hoboken
- Sector
- E-commerce
- Founders
- Marc Lore, Mike Hanrahan, Nate Faust
- Investors
- GV, Goldman Sachs, Bain Capital Ventures, Accel, Alibaba Group
- At its peak
- 4.5 million products at launch (July 2015)
- Cause of closure
- Acquired and shut down
What did it do?
Jet.com was an online retailer that aimed to make customers' baskets cheaper using a real-time pricing algorithm. Choices such as buying more items at once or picking products from the same fulfilment centre were passed on to the customer as discounts, to the extent that they made the order cheaper for the company. The site launched in July 2015 with 4.5 million products.
Why did it shut down?
Jet grew on a model that was willing to lose money for the sake of price advantage, financed by $820 million of venture capital; in a test purchase by The Wall Street Journal, the site lost $242.91 on a single order. In 2016 Walmart bought the company for $3.3 billion, and Marc Lore took charge of Walmart's US e-commerce business. After the acquisition, sales through Jet.com declined; in June 2019 most employees were moved over to Walmart.com and Jet's president stepped down. Walmart announced in May 2020 that it would close the site, and on 4 June 2020 began redirecting visitors to Walmart.com.
The story
In July 2015 The Wall Street Journal made a test purchase from a newly launched online retailer: it paid $275.55 for 12 items. The same items had cost the site $518.46; Jet.com had lost $242.91 on that single order. The site's strategy was to win customers by competing with Amazon on price.
Jet's founder, Marc Lore, knew this market well: he had sold Diapers.com to Amazon in November 2010. In Lore's view, existing online retailers served affluent customers who put convenience ahead of price, whereas many shoppers would rather pay less if they were willing to wait a little longer. Lore founded Jet.com in 2014 with Mike Hanrahan and Nate Faust. It took seed funding from Accel; at the heart of the system was a real-time pricing algorithm that calculated the true cost of getting a product to a customer. The original plan was for a $50 annual membership fee to be the only source of profit, with products sold at break-even prices. By February 2015 around 352,000 people had signed up for early membership.
The site officially launched in July 2015 with 4.5 million products. In November 2015 it raised $350 million in a round led by Fidelity; in its last round, in May 2016, the company was valued at $1.3 billion. In total it raised $820 million over four rounds from investors including GV, Goldman Sachs, Bain Capital Ventures, Accel, Alibaba Group and Fidelity.
On 8 August 2016 Walmart announced it would buy Jet.com for $3.3 billion, $3 billion of it in cash; Lore took charge of Walmart's US e-commerce business. After the acquisition, however, sales through Jet.com declined. In June 2019 most employees were moved over to work on Walmart.com and Jet's president, Simon Belsham, stepped down. On 19 May 2020 Walmart announced it would close the site; from 4 June 2020 visitors to Jet.com were redirected to Walmart.com.
Jet.com's story leaves open the question of whether it was a failure or a successful exit. For the founders and investors, a $3.3 billion sale went through; but the brand ended up as a stopover in the buyer's strategy of strengthening its main site. Whether a model that grew on loss-making orders could have survived on its own was never tested.
Lessons for founders
- In an e-commerce start-up that grows on price advantage, track the contribution margin on every order; market share bought at a loss disappears when the capital stops.
- Being acquired can be a successful exit, but whether the brand survives depends on the buyer's strategy; discuss this openly during negotiations.
- Once the team and technology move to the buyer's main brand, traffic to the standalone site drops quickly; plan that transition in advance.
Sources
- Jet.com (Wikipedia)
- Walmart winds down Jet.com four years after $3.3 billion acquisition of e-commerce company (CNBC, 2020-05-19)
- Jet's president will step down as Walmart overhauls the site it acquired for $3.3 billion (Business Insider, 2019-06-12)
- Behind the Numbers of Jet.com's Audacious Plan to Attack Amazon (The Wall Street Journal, 2015-07-20)
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