Costco’s First Real Threat

A see saw showing value vs convenience

Costco is one of the best run retailers in the country. With clarity of mission foreign to most of its retail competitors, it has dominated the upper middle class family pantry shopping experience for the past 20 years.

Every retail channel has tried to fight back, but with little luck. Grocery tries to sell larger packs to match prices, but few can manage that on a regular basis. Drug chains have also tried, but can’t get the logistics savings that make the model of low markup high turn work. And until recently Amazon could not figure out the weight-price/logistics cost issues to really compete for the mass center of the store “pantry” market.

But now out of left field comes a new disrupting force…, founded by Marc Lore (founder of Quidsi which he sold to Amazon). According to the NYT, “Jet’s promise is simple and, if the company can keep it, potentially momentous: to offer the absolute lowest price on just about everything, from paper towels to oatmeal to tennis rackets, guaranteed.” The article continues, ” Mr. Lore says he believes he can keep that promise thanks to an unusual business model. Like Costco, Jet will charge an annual membership fee, in this case $49.99. That fee is intended to free Mr. Lore from making any profit on each item — and thus pass all potential savings to customers.”

Financed with $200 million before opening, Jet’s market is the mass consumer that cares about value and will sacrifice convenience. All of Jet’s profit and overhead is covered by the annual membership fee. They pass through product at cost to the consumer. Buy more than $35 and shipping is free. The NYT notes, “Jet is going after an audience that’s different from Amazon’s — one that is less affluent, less hooked on impulse buying and more interested in discounts. ‘For most households, the proposition of paying $50 to Jet and saving $200 for the year, that’s a no-brainer thing,’ Mr. Lore said.”

This is the company to watch as it “Jets” with the millennial generation transitioning from single household convenience, to young family savings starved households.