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Comment by xpose2000 | Hacker News Reader

xpose2000

I like Jet and hope it sticks around. I just don't know how it will make it based on their pricing structure and how much money they can lose on transactions.

For example, a month ago I bought an office chair. The retail price of this chair was $160. Jet.com was offering the same chair for $112. I was shocked. Plus they have a 15% off coupon for your first order. Needless to say, I bought the chair.

Jet ordered the chair from another website at the full retail price of $160 but turned around and was selling it for $112 with free shipping and a 15% off coupon code.

My purchase price was just $95. Meaning Jet lost at least $65 on this transaction.

I just don't know how they will stay afloat without constantly asking for money from investors. And how long will that go on for?

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I read an article that Amazon has no profits most years [0]. Maybe that's the financial model they are going after. I share your view on this though, because until they reach that point, they are running a big risk. It will be interesting to see how long they can keep it going.

[0] http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-n...

The difference is that Amazon had no profits in the early days because they poured money into improving their supply chain not selling products at a loss as a strategy. Drop shopping isn't the same as building your own supply chain out. There is no strategic advantage to be had placing orders with a drop ship network.

Amazon has no profits but bountiful cash flows. They make money on the margin when you buy something, they just invest it back into the business.

The well-known reason behind that is because of Amazon's capex, not because Amazon is losing money on reselling inventory.

How do you know what Jet paid for the chair?

I looked around and compared prices. Nothing was cheaper than $160. Plus the package was shipped directly to me from the place that Jet got it from... which was ibuyofficesupply.com

Edit: I was asked why I think Jet paid full retail price... I can't know that for sure obviously. There was a packing slip that I didn't think to look at. In any case, the only way they don't lose money is if they bought it for close to 50% off. Seems unlikely to me.

2x is entirely reasonable markup on a piece of furniture, particularly if they bought it in bulk. There's just no way they are selling merchandise at a 40% loss per unit.

Why do you think that Jet payed full retail price?

My understanding from interviews with employees and they use volume, logistics and other factors to leverage a better deal that they pass off entirely to the customer. (They make their profits off the membership as I recall)

I think this was the original plan, but they dropped the membership fee and have since raised several hundreds of millions to continue operating. Hence all of the head scratching about their financial prospects.

Its more likely Jet drop-shipped it, and that's their supplier.

Furniture has huge markups (in the few 100s of %). Just check how much it costs to order small (25 to 100) runs on Alibaba.

I bought an item from Jet once that came with a receipt from GNC for around $10 more than what I paid for it.

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