I worked for a big warehouse club chain for almost nine years, and I think they may be about to get schooled by a startup.
I just finished reading this article, and it seems Marc Lore has a really good shot at making a huge impact in retail. Lore ran a few startups before his Diapers.com parent company was bought by Amazon in 2010, and he stayed with the Bezos gang for a couple years after the deal. Now he’s back on his own and going after membership-based retail in the form of Jet.com. The idea behind Jet is as old as Sol Price’s original concept for the club channel.
In its purest form, the club model is:
- Members pay to shop and the company makes all its profit from those paid memberships.
- Items for sale only have to be priced high enough to cover the costs of operating the business, so prices will be lower than non-club competitors who are pricing to make a profit from each individual item sold.
- Low prices attract more members, GOTO Step 1.
Brick and mortar clubs like Costco, Sam’s Club, and BJ’s have strayed from the pure model, supplementing profits with add-on services and ancillary businesses, not to mention the upward pressure of ever-increasing costs inherent in maintaining a physical presence for members. While Costco is well known for holding the line on markups, Sam’s Club and BJ’s have taken some additional profit in recent years by letting prices creep up or letting quality slip in categories where members are less likely to notice.
More importantly, Lore has realized something all three traditional clubs have failed to execute well. Online sales offer an even greater opportunity to minimize the cost of goods, offer even lower prices, and drive greater membership sales as a result.
How? In addition to the classic e-commerce advantages of reduced overhead, more efficient shipment practices mean lower costs, so Jet will focus on providing a platform, connecting members to regional or even local merchants who can offer better pricing thanks to lower delivery costs, as well as discounts for add-on items or product bundles. None of the traditional warehouse clubs have truly cracked online sales, so the door for Jet is wide open. If you need to see for yourself, simply visit any of them. As a charter member of Amazon Prime, I’ve been waiting years for Amazon to flex their muscle and give the old school clubs a run for their money. I’m guessing Lore learned more than a little about selling and renewing memberships during his time in the jungle.
One final way Jet is besting traditional clubs is by offering three months of free membership for everyone who wants to give it a try, and they’re extending that to six months for “Jet Insiders” (aka anyone with an email address) who sign up by February 6th. Combine that with a clever social media referral strategy they are calling ‘Shares for Shares’ that rewards the top insider with 100,000 stock options, and you have a big carrot that only a wild and crazy startup would offer. That’s a hell of a lot more incentive than either Costco or Sam’s Club have ever given me to refer others to sign up.