EXECUTIVE SUMMARY

Since we last reported on Jet.com on July 20, 2015, the company has undergone some significant changes: it has acquired home goods e-commerce retailer Hayneedle, seen its valuation increase to around $1.5 billion, scrapped its paid subscription model and used its unique pricing strategy to attract customers who are interested in seeing how they can realize various savings. The company has also raised more than $800 million in equity financing.

CORPORATE UPDATE

On February 22, 2016, Jet.com announced that it had acquired home goods e-tailer Hayneedle, which offers a wide array of products in areas such as pet supplies and patio furniture. Hayneedle reportedly has annual sales of over $350 million. Currently, Jet.com offers only about 800,000 products that fall in the home goods category; the Hayneedle acquisition will add a couple million more products to its offering. Jet.com will also gain use of Hayneedle’s customer support center, which is already operational, and its fulfillment warehouses. Jet.com moved its headquarters from Montclair to Hoboken, New Jersey. The company also opened a customer service office in Salt Lake City, Utah, for use by the “Jet Heads,” its customer support team. Jet has other offices located in Kansas and Nevada, and Hayneedle is headquartered in Omaha, Nebraska. The most recently available information puts Jet’s headcount at more than 1,000 and Hayneedle’s at over 500. There are currently more than 70 open jobs listed on the Jet.com website, indicating that the company plans to expand. As part of a company policy to promote trust and openness, salaries are not kept secret and they are not negotiated. Rather, every salaried worker is placed at one of 13 tiers commensurate with his or her experience and receives a salary that ranges from $40,000 for entry-level employees to $300,000 for executives, with stock options as well.

FUNDING UPDATE

Jet.com recently closed its Series B round of funding, which was led by Fidelity Investments. The latest round gave the company a valuation of about $1.5 billion, up from its $1 billion pre-money valuation. Jet.com raised equity financing and also increased its credit line. With the round now closed, Jet.com has raised more than $800 million total in equity funding.

BUSINESS STRATEGY UPDATE

Within three months of launching, Jet.com announced on October 7, 2015, that it was shifting the customer value proposition and dropping its membership fee. Management concluded that Jet could pass on savings to its customers while achieving sufficient profitability for its investors even without having a paid subscription model. The change was announced while Jet’s free trial membership was still in effect, so the company had collected no revenue from membership fees when it made the announcement. Jet.com employs a proprietary algorithm that it refers to as the “Jet Rules Engine” in order to organize its price structure. Prices are not determined up front but are instead calculated by accounting for variables such as volume and location of goods sourced. The customer finds out the final cost of his or her order only upon checkout, which can offer pleasant surprises as discounts are applied and the total order price changes. Jet claims that its starting price points are comparable to those of other e-retailers. However, the company is able to decrease its costs through supply chain optimization, lower fees in payment processing and other areas; these savings are then passed on to the customer in the form of a discount.

PRICING

Customers can save money on Jet.com in three ways. First, Jet.com provides free shipping to its customers for orders of $35 or more. Any order below that threshold receives an additional charge of $5.99 for shipping and handling. For any item that Jet.com considers to be an “everyday essential,” delivery occurs in two days or less. Other items may take up to five days. This difference is due to how Jet.com sources the goods that it sells. Everyday essentials are stored in Jet.com warehouses, while everything else is delivered via partner retailers. Currently, delivery is available only within the 48 contiguous states and the District of Columbia. Free returns are also guaranteed. However, customers can waive the right to return items for free and realize additional savings. Second, Jet.com also offers customers the ability to purchase “smart items,” and to filter results by that category. Smart items are products that are practical to purchase together and that can be shipped together in a way that makes it cheaper for Jet.com. This decreases the price for the customer. On top of purchasing smart items and waiving the right to free returns, customers can also realize additional savings by purchasing in volume. There is a limit to this, however, as most SKUs have a purchase limit of 10 items, and some have lower limits. Third, customers can directly save at the point of sale. Currently, Jet.com accepts American Express, Discover, MasterCard and Visa cards. Customers can realize an additional 1.5% savings if they opt to pay via debit card. For a limited time only, new members receive 15% off their purchase totaling $35 or more, with a limit of $30 off.

BUSINESS SEGMENTS

Since launching, Jet.com has divided its website into a few segments (in addition to the separate Hayneedle.com website). The company has introduced Jet Wholesale and has made some changes to its Jet Anywhere program.

A RENEWED LOOK AT JET ANYWHERE

Jet Anywhere is a program that includes over 600 online stores, some of which are retail partners of Jet.com and others of which have no other affiliation. From the Jet Anywhere section of the website, customers can link to another store that may sell a product or service not normally available from Jet.com. Once a purchase is made from one of the listed websites, the customer then must forward the confirmation email to anywhere@jet.com within 14 days. Once this is done, the customer receives a percentage of the price in the form of Jet Cash, which can be used to make subsequent purchases on Jet.com, similar to the way cash-back-reward credit cards work.

JET WHOLESALE

Jet.com has created a separate section of its website called Jet Wholesale. Jet Wholesale focuses on the everyday essentials category and also offers many items in “family size.” The wholesale/everyday essentials concept is comparable to Amazon’s Prime Pantry service and other last-mile-delivery services, such as Instacart. Most of the items purchased through Jet Wholesale are available for delivery within a two-day window.

ADDITIONAL INFORMATION

CEO Marc Lore has said that he has no current plans for future acquisitions beyond Hayneedle. The company exited 2015 with a $500 million revenue run rate. Lore commented that first-quarter results for 2016 are reportedly on track to beat the last three months of 2015. The company’s Android and iOS apps were both on “Best of 2015” lists and, at the time of this writing, the Jet.com app is ranked number 33 in the Shopping category on the Google Play android app store and number 7 on the list of top free Shopping apps in the iOS App Store. Jet.com currently offers over 10 million products and is steadily adding more, having met its stated goal. On the logistics side, shipping times have also improved, with the majority of everyday essentials arriving within one to two days of ordering. As of December 2015, up to 20,000 orders per day were being processed. According to publicly available information, Jet.com is showing growth and strength across all measurable metrics. The company’s current billion-dollar-plus valuation suggests that it indeed on track to become a major contender in the online wholesale marketplace.

CONCLUSION

Since its founding, Jet.com has expanded rapidly and changed dramatically. It is now valued at around $1.5 billion and has raised a total of more than $800 million in equity funding. The company’s employee base and office size/locations have also expanded, helped greatly by the recent acquisition of home goods e-tailer Hayneedle. Jet.com has changed its pricing model, expanded its offerings and adapted to make itself more competitive and stand out in the market.