One of the most highly publicized recent e-retail startups is overhauling its business model less than three months into its existence. One analyst says the change could mean that Jet, which has promised the lowest prices online, will not be able to undercut other e-retailers’ prices as much as anticipated.
Jet.com CEO and founder Marc Lore wrote in a blog post today that Jet is eliminating its $50 membership fee, opening the platform to all shoppers free of charge. The marketplace will continue offering free shipping on all orders over $35 and free returns.
“By enabling even more people to embrace this new way of shopping, we believe we can more fully realize our vision of a reshaped e-commerce landscape and deliver unprecedented value to consumers and retailers,” Lore writes.
This represents a big shift for Jet, which until now had said it would sell items essentially at cost and make money only off its $50 annual membership fee. A Jet.com spokeswoman says the business will make money instead from retailer commissions. According to Jet’s partner agreement, Jet charges a 15% base commission on most sales made through the platform, though that rate changes depending on the item’s category. For instance, retailers selling appliances through Jet pay a 15% commission on all items sold for under $300; 8% on all items over that threshold.
The spokeswoman says more consumers will be able to shop at Jet.com as a result of the change. “Now, without an upfront fee, we can appeal to a wider customer base and have a bigger membership community, opening the power of the platform up to more people,” she says.
The company can introduce a fee in the future and wasn’t charging anyone for a membership yet anyway, so its elimination isn’t a huge change, said Sucharita Mulpuru, analyst at Forrester Research Inc.
“They’re not in trouble yet,” she said. “They can always introduce a fee later on and promise faster shipping.”
While eliminating the membership fee could attract more shoppers, analysts caution it could come at the expense of one of Jet’s core promises—low price. Profitero reported in July that the average price of goods sold on Jet was 9% lower than Amazon and 6% lower than Walmart.com.
That may change, Wells Fargo analyst Matt Nemer wrote in a note today to investors. “Because Jet.com will now be using a portion of seller commissions as a profit stream, we expect less reinvestment in the form of lower prices and ultimately a smaller pricing spread between Jet and other retailers,” Nemer says.
ChannelAdvisor CEO David Spitz thinks merchants who sell on Jet could benefit in the long term because of the shift.
“Eliminating the entry barrier to the marketplace will only encourage consumers to explore the site,” Spitz says. “Jet can capture these first-time customers with a great user experience and with the Smart Cart that can help them save money.”
Jet.com did not return an email seeking comment on whether or not customers who already paid the $50 membership fee would be reimbursed.
Bloomberg News contributed.