Everything You Need To Know About Amazon's New Rival Jet.com

If you haven't heard of Jet.com yet, you will very soon. The groundbreaking startup e-retailer has already accumulated 100,000 trial members in limited markets, and on Tuesday it will open fully to the public across the country. The company will soon be spending more than $100 million on billboards and TV ads too.

With claims that it has the cheapest prices anywhere on the Internet, period, Jet's mission appears to be nothing short of revolutionizing how and where people shop. On the short list of the company's overarching goals is the understated goal to "Breathe new life into online shopping. Seriously, things haven’t changed much since 1997."

Here's what shoppers should know about the company attempting to upend online shopping:

It's for members only. The site is sort of like a mix of Costco and Amazon Prime, in that purchases can be made only by members who are subjected to an annual fee ($49.99). That membership comes with cheap club-only prices and free shipping for orders of at least $35. Jet members get free shipping on returns too, although prices will be even lower if you waive free returns on purchases.

Membership is free for three months. Starting Tuesday, anyone can sign up for a free trial membership for 90 days. That should give you plenty of time to check out the service at no risk and see if you like it better than—or in addition to—Amazon Prime or a warehouse club membership.

It promises the Web's cheapest prices. Above all, Jet plans to make a name for itself as the online destination for the absolute lowest prices. “We’re going after that segment of the market that really cares about price and is willing pay a fee to save,” Jet.com founder and CEO Marc Lore said to the Wall Street Journal. For any individual item, Jet has said its price will generally be 10% to 15% cheaper than elsewhere online. What's more, as early testers have found out, the prices of individual items get less expensive in real time as shoppers add more products to their carts. Prices drop even further if shoppers click on options that lower Jet's costs -- such as paying with debit instead of credit or agreeing to wait for different items to be shipped in the same package.

Lore, it should be noted, has experience competing with Amazon as the co-founder of Diapers.com (which Amazon eventually bought).

It's making a money-back offer. After months of testing, Jet has promised that a membership will save the average shopper $150 per year. And if the cost of membership winds up not being worth the price to any customer, Jet will refund the difference between the membership fee and how much the person saved.

It doesn't make money on orders. Rather than earning tiny (or large) profits on each purchase, Jet says it makes no money whatsoever on orders. “The bottom line is, we’re basically not making a dime on any of the transactions. We’re passing it all back to the consumer,” Lore told Businessweek earlier this year. Rather, the company says its profits will come exclusively from membership fees—which, again, new members don't have to pay during the 90-day trial period. This is among the reasons Consumerist.com has described Jet as "either the future of retail or a doomed wacky scheme."

The selection is hardly limitless. Jet will sell everything from toilet paper to Blu-ray players. But some of the things you might regularly buy at Costco -- like frozen foods -- cannot be purchased from Jet, at least not yet. That's understandable, considering the difficulties of shipping such products. At least one early shopper also noticed that Jet had very limited options in categories like sporting goods.

It pumps up transparency and no gimmicks. Rather than shy away from competing directly with established online discounters and the members-only warehouse clubs, Jet has been taking swipes at retailers that entice shoppers into purchases they regret. "No 29-minute flash sales. No fancy sample stations that suck you in, resulting in the purchase of a 30-pound jar of spicy pickles," the site promises. Jet won't force you into buying bulk-size items like the Costco model, and the annual membership price is half that of Amazon Prime. Analysts expect that shoppers will react positively to Jet's upfront and honest approach, particularly the way that consumers can watch prices change based on shopping choices. “The transparency is what may allow it to get a hook in the marketplace -- by being so transparent about how to lower the price and making it less smoke and mirrors,” Daymon Worldwide vice president of global consumer and innovation strategy Virginia Morris said to the Washington Post.

It'll lose tons of money for years. Jet has raised $225 million in capital, and it is working on raising hundreds of millions more in funding this year. Still, because the business model only works if tens of millions of paying members jump on board, the site expects operating margins to be negative for at least five years.

 

A string of purchases made recently by the Wall Street Journal showed the most astonishing way that Jet is losing money. For the time being, it seems, Jet is actually purchasing many items from other retailers to complete member orders. "When a Jet customer buys items that aren’t in its inventory or available from partner merchants, a Jet employee buys the items from another website and has them shipped directly to the customer," the Journal explained. "That is expensive for Jet because the company often pays high shipping costs plus any difference between its advertised price and the amount charged by the outside website." Overall, the WSJ purchased 12 items in this manner via Jet, for a total of $275.55. The cost incurred by Jet, meanwhile, was $518.46, for a loss of $242.91.

It expects to become a retail powerhouse quickly. By 2020, Jet's projections call for it to have 15 million paying members forking over $750 million annually, with $20 billion worth of sales per year.

Will shoppers give up their Costco and Amazon Prime memberships and become Jet loyalists? There is a fair amount of skepticism on this front, because warehouse clubs and Amazon offer shoppers many things that Jet currently does not -- including those in-store samplesas well as options for same-day shipping and video streaming. Nonetheless, Amazon sure seems to be taking the threat from Jet seriously. Many observers saw last week's special Prime Day sales as a way for Amazon to lock in new Prime subscribers so that they wouldn't be as tempted to sign up for unlimited free shipping services from competitors such as Walmart and, of course, Jet.

Read next: How Walmart Beat Amazon on Prime Day