What you need to know about Jet, the so-called ‘Amazon killer’

Jet’s ambitions are as huge as a double decker plane (which you can’t buy on the site — yet). The online mall is planning a $100 million advertising campaign — we’ve spotted busses wrapped in Jet logos in New York City — and has received $225 million in funding, per CrunchBase. Leading the charge is CEO Marc Lore, the man behind Diapers.com, which he sold to Amazon in 2010 for $545 million.

The Hoboken, New Jersey-based company has already spawned think pieces about whether it’s an “Amazon killer” for its aggressive prices and membership fee model. Here’s what shoppers need to know:

There’s a yearly fee.
Similar to shopping at a membership club, Jet charges a $49.99 annual fee with free shipping for orders more than $35. Orders less than that are charged a $4.99 shipping fee. New customers are being offered a free three-month trial.

Jet’s shipping prices are the same as Walmart and $10 more than Target, which offers free shipping on orders more than $25. Compared to Amazon Prime, it’s considerably less than $99 a year, but includes fewer shipping options and doesn’t include access to streaming music, television shows and movies. And, of course, you can shop Amazon, Target and Walmart without a membership.

Jet claims to have the Internet’s lowest prices, but how?
To save money, you have to spend money. The plan is to offset losses on some products it sells below Amazon and other competitors by relying on the membership fee to cushion the loss. In a punchy attempt to show that shoppers are getting the best price, it displays Amazon’s prices in real time on it product pages. Prices also decrease if items are purchased with debit or if items are stored in a warehouse nearby them.

The Wall Street Journal noticed that it’s losing significant money on some orders that it doesn’t have in its own stock or from its partners. Jet employees are actually buying items and shipping them to the customer while eating the difference. Overall, the newspaper bought 12 items on Jet totalling $275.55, while Jet paid $518.46 — a massive loss of $242.91.

That doesn’t sound sustainable. But Lore told Recode that this is a “bridge” until it fills out its shopping catalog so it start selling the items themselves.

Will people buy a membership?
If the success of Amazon Prime is any indication, yes. Forty million people have signed up for Prime, spending an average of $1,500 per year — twice as much as what customers who don’t have Prime spend. The membership model has helped the notoriously unprofitable Amazon.

Yet, Lore admitted to the Journal that scaling up is the “big question.” Jet’s business model is “100 percent proven viable at scale,” he said. “You just have to get to scale.”

Spinning it as an Amazon killer is a long ways off, though, and depends on tens of millions of people buying a membership. Even though Lore predicts that it won’t make money for at least five years, he’s confident that Jet is lasering in on a lucrative consumer base.

“We’re going after that segment of the market that really cares about price and is willing to pay a fee to save,” he told the Journal.