Jet.com

E-commerce Game Changers: How big brands are using Jet.com. From IRCE 2015

Join in this dynamic discussion (shot at IRCE 2015 in Chicago) with Jet.com’s Scott Hilton and CommerceHub’s Eric Best as they discuss the company’s ambitious business plans and review why today’s leading retailers are smart to align with this marketplace.

Marketplaces like Jet.com can help retailers and product suppliers drive brand, products and sales. Touted as one of the biggest bets in the history of online retail Jet.com is a 100 employee startup that is taking online retail by storm.

Transcript

Eric Best: Well, good afternoon and welcome, everyone. My name is Eric Best. I’m the Chief Marketing Officer at CommerceHub, and we’re here at IRCE 2015 and today, I’m joined by Scott Hilton. He’s the Chief Revenue Officer at Jet.com, and we’ll spend the next 15 minutes or so talking about Jet, what is it, who does it serve, and for brands and retailers that are interested in reaching more shoppers in new ways, in new places, how can Jet help. So, Scott, welcome.

Scott Hilton: Thanks, Eric.

Eric Best: Yeah. So, why don’t we just kick things off with the softball and that is, what is Jet and why do you guys exist?

Scott Hilton: All right. I don’t know if I can answer the second one. It’s a little more complicated, but–

Eric Best: Existential.

Scott Hilton: Existential. Jet is a new e-commerce site for consumers. It’s a membership site. We carry millions of products across all shopping categories, or nearly all and at unprecedented value. The unique thing about Jet is that value for the consumer is unlocked by consumers shopping in ways that save retailers cost. It reduces their cost. For example, building bigger baskets and things like that, which I can describe in more detail.

Eric Best: Okay. Sounds good., this is a marketplace model?

Scott Hilton: We don’t like to use the word “marketplace” just because it carries some baggage with some existing players out there because it’s very, very new. It’s a completely different approach, but it is. Our fulfillment is provided by retail partners.

Eric Best: So, let’s contrast it with some of the existing players that are in the market. Obviously, Amazon, eBay, Newegg. How does this program compare? How does it contrast?

Scott Hilton: Yeah. So, the unique thing about Jet, kind of the hallmark is it’s really based on the technology. The platform is built more like a financial trading platform. And so, what that enables is a lot of unique things. On a typical marketplace today, a retailer puts up a single offer for a product. That tends to turn into a who can price it the best, and it’s a race to the bottom in pricing on the item level. At Jet, we’ve really separated that specific retailer offer for a single product. Consumers shop around looking for the things that they want and during that shopping experience, we’re live behind the scenes looking at what retailers may have those products that can fulfill together and other things, but that’s primarily the main driver. We serve those products to the consumer to incentivize them to sort of build bigger baskets and select products that can fulfill from the same retailer. So, we’ve broken that hard link where a consumer, they’re looking for one item on today’s marketplace, might buy one item from one retailer and another item from a different retailer. That just turns into that item-by-item price war. We’re all about the basket economics.

Eric Best: Okay. So, optimization at the basket level, not the SKU level.

Scott Hilton: Not the SKU level, right.

Eric Best: There’s also a geographic optimization component to it, right?

Scott Hilton: There is a geographic component, right. So, how we incentivize the consumer to pick these items is that if they take an action that reduces cost, like selecting two things that ship together, it pulls cost out for the retailer. The platform is built where retailers can set rules to share some of that cost savings with the consumer. So, there’s additional savings, and that’s done dynamically while they shop. The same thing can be done for geographic diversity. Retailers can set savings– if they happen to know this product is shipping across the country and it’s an order they don’t want, they could effectively set the savings to a minimum so the consumer would be less incented to pick those items.

Eric Best: So, it raises an interesting question. If I’m a merchant and I’m considering this platform, am I in the driver seat when it comes to these discounts and price optimization across the cart and geography?

Scott Hilton: You are. That’s the unique thing about it is that by using these rules in the platform, you can really dial in the consumers that you want. That’s the other really big aspect of Jet from a retailer’s perspective is that we allow access to the consumers in the platform. We don’t make anything from the transaction. Our take is the consumer membership fee. Everything else, the platform, is operated at cost for the retailers and the consumer. And so, that gives retailers access to the consumer. They can provide their e-mail address. They can decide what baskets they want, what baskets they don’t want. So, if they wanted to set a rule, as an example, where I don’t want to take any orders that are less than three items in their basket, you could set that rule and they wouldn’t get that. There’s one more aspect too about it which is quite powerful. Because we reveal the retailer that’s going to be fulfilling the order at the end when the consumer wants to check out, it’s really a brand preserving experience. The retailer is never shown to the consumer in situations where they don’t want. It’s always in the situation where they want to win that basket. So, it’s a very positive brand building experience.

Eric Best: So, let me push on that a little bit because I know that strategically, when we talk to brands and retailers, they’re going to say, “What incentive do I have to offer a better offer on Jet than I might offer on my own website?” How do you address that concern on the part of brand, retailers and manufacturers?

Scott Hilton: Sure. That’s always the challenge. It’s always the balance of, hey, do I behave in a way that might either take consumers away from their site, or a behavior like this morning, if you went to the Target presentation, they were talking about subscribing shipping, automated shipping for subscription level. The fact of the matter is those consumers will be shopping on the site. There’ll be new consumers shopping on the site. There could be existing consumers. The goal is just to be there in front of the consumer and win those consumers and those orders that are best for the retailer.

Eric Best: And there is a consumer cost of entry effectively.

Scott Hilton: There is. There’s a $50 a year annual membership fee for the consumer. (This membership fee was dropped in October this year, as per an announcement by Jet.)

Eric Best: Okay. So, more tactically speaking, how do I think about Jet in terms of seller of record, let’s say open questions like tax, nexus and so on? How does the model operate in that regard?

Scott Hilton: Yeah. So, we’ve set it up where Jet is the seller of record. So, we collect the tax from the consumer and pay it to the state. So, in that, from a tax perspective, we look more like it’s a wholesale transaction. However, it really isn’t. The retailer has full control over what consumers they have access to. It’s not like they’re selling their product and we can sell it to anyone. They choose what consumers they’re selling to.

Eric Best: Okay. It kind of begs the related question; do you guys own and stock inventory?

Scott Hilton: We do, with small amount of inventory only in the consumable space. We’ve set it up where we will only sell products directly ourselves in the consumable space; things like paper towels, diapers, things like that that typically are very difficult to fulfill and we want it to be part of the assortment for consumers.

Eric Best: Okay. So, that’s really a shopper experience.

Scott Hilton: Just a shopper experience thing. However, retailers that also sell those same products have an advantage. We’re not going to sell the long tail. If they happen to be selling paper towels or cleaning products as well as other items that can ship together, that would ship from the retailer.

Eric Best: Okay. How do you price for the program?

Scott Hilton: For retailers?

Eric Best: Yeah, for sellers.

Scott Hilton: For sellers. It’s a commission-based structure. So, the commission varies by category. It ranges from electronics, 8-percent up to 15-percent. Fifteen-percent is the highest commission. Most of the categories are around the 15-percent. We do have a few categories in, for example, pet food, which is five-percent. Out of that commission, Jet covers the payment processing costs. We also provide the first line of customer service. So, customer service costs are in there, as well as the operational expenses of the platform. The rest of the commission is then used to provide those incentives to the consumer to shop in ways that can reduce retailer costs.

Eric Best: I know I’ve seen publicly forecasts of your top line revenue and your gross merchandise value. I think the number for 2015 is a billion.

Scott Hilton: A billion dollar run rate, yeah.

Eric Best: And there’s a five-year forecast as well?

Scott Hilton: Right, and that’s $20 billion.

Eric Best: Twenty billion dollars.

Scott Hilton: Yeah.

Eric Best: Okay. So, that’s a pretty aggressive growth forecast.

Scott Hilton: Yeah, it is aggressive.

Eric Best: You’ve got a slide here I think.

Scott Hilton: We had a program that we started at the end of the year last year and ended in the early part of this year called our Jet Insider Program, which is to really create buzz and excitement from the consumer base. We had 352,000 consumers sign up, and they continued signing up. We had over 420,000 members sign up so far. We’ve opened up the platform to the top insiders. So, as of this morning, 61,000 consumers have been opened up to the platform. We’ll continue to open it up to consumers. By the end of June, we’ll have 200,000 consumers we’ll open it up to.

Eric Best: So, this will be a rolling launch.

Scott Hilton: It’s just a rolling– yeah, it’s a rolling launch. The plan to release it to the public is in July where we’ll open the thing wide open to the public. Then over that first year, we’ll be spending about $100 million in marketing spend to attract consumers to the site.

Eric Best: So, given that GMV trajectory, how do I think about volume potential as a seller on the platform relative to say other marketplace programs or other consumer shopping destinations that’s out there in the market?

Scott Hilton: So, you need to kind of look at the category you’re in, and from our forecast, the sales in each category generally follows what’s typically sold on the Internet. Electronics is a big category, but other categories are as large as well, and then just look at what you want to sell to the platform. The most powerful offering is for retailers to upload their entire assortment. For retailers that may have unique items, or unique assortment that consumers find on the site, because of the way the economics work, that puts them in a unique position to potentially win bigger baskets, but not always. I mean, what’s really unique about the platform is it can work for the smaller sellers that may do really well in one geography, but they don’t want to compete on a national stage.

Eric Best: Right. That competitive price dynamic is mostly hidden from the consumer, isn’t it? I only determine who my winning seller happens to be when I actually check out at the cart level. Is that a true statement?

Scott Hilton: That’s right. Yeah. As you check out, the retailer is revealed to you at that point. There’s some additional actions that consumers can take at that point as well to continue to pull costs out of the system. For example, one of them is waiving the right to return products. If it happens to be a category that has a high return rate, retailers can offer an incentive to the consumer to not return the product for a bit of a savings. So, both sides–

Eric Best: And the flipside of that is as a seller, I can be less concerned about offer or price transparency in situations where I may not be the predominant or winning merchant.

Scott Hilton: You’re not shown. Yeah, you’re not shown. Unlike today on some of the sites that have multiple retailers listed, it’s not really a good brand experience if the consumer is seeing that on this particular product, you’re higher priced than everyone else.

Eric Best: Right. That makes sense. All right. So, with CommerceHub, or God forbid without, how do I get started on Jet.com as a seller? I mean tell me a little bit about the process for getting involved. Scott Hilton: Sure. It’s very straightforward. You can go to partner.jet.com to sort of read how the specifics work. But effectively, how it works is we offer an API, or one of our partners like CommerceHub that you can connect to the platform. Once you’re connected to the platform, you start selling. Folks that are hooking up via one of the partners like CommerceHub, it’s a very rapid process because they’re already integrated. We have a platform.

Eric Best: And we’re active today in terms of onboarding early adopters of the platform.

Scott Hilton: Yeah.

Eric Best: Well, Scott, thank you. I think we should turn it over to Q&A here if we’ve got questions from the audience. We’re happy to take some.

Scott Hilton: Softballs only.

Eric Best: Yeah. We’ll take any question.

Q: <inaudible>

Scott Hilton: Just to repeat the question to make sure I understand it; if a consumer opts out and waives their right to return?

Q: If they don’t waive that right.

Scott Hilton: Oh, if they don’t waive the right.

Q: If they don’t waive their right then how are returns handled?

Scott Hilton: Yeah. So, we have a unified return policy for the site where it’s free returns in 30 days. Those returns would be sent back– we unwind the transaction and send that item back to the retailer. It’s all handled via the API.

Eric Best: Yeah. Question here.

Q: As A Seller who owns the shopper, and what restrictions are placed on sellers?

Eric Best: Ah, great question that we didn’t touch on. Thank you. The question was as a seller, who owns the shopper and what restrictions are placed on me as a seller, if any, in terms of remarketing rights and ongoing ownership of that shopper relationship? Can you touch on that?

Scott Hilton: Absolutely. That’s one of the unique aspects to Jet is that we allow access to the consumer. So, in the shipping container that you’re sending to consumers, you can freely market to them. You can offer an incentive to the consumer during the checkout experience to capture their e-mail address. If the consumer opts in, you can freely market to them. We have no restrictions to market directly to the customer and use it as a platform to bring them to your site.

Eric Best: Okay. Well, on behalf of CommerceHub, live from IRCE 2015, I’m Eric Best. Thank you, guys, for attending.