By: Rachel Strugatz. Source: WWD.
The marketplace site Jet is perhaps the most buzzed about e-commerce company right now — and it hasn’t even launched.
Founder and chief executive officer Marc Lore has already raised $220 million for the venture from investors including Bain Capital and Accel Partners — and was in a plum position to do so. He sold Quidsi, the parent company of brands like Diapers.com and Soap.com in which he cofounded with Vinit Bharara, to Amazon in 2010 for more than $500 million. Lore stayed on at the e-commerce giant until summer 2013 before departing to build Jet, a place that he says will maximize order profitability for retailers and provide the most cost-efficient option for consumers. The marketplace will open to the public sometime in “late spring.”
While Jet in and of itself has been generating lots of attention, less remarked on is the central role Quidsi has played in spawning a slew of e-tailers, mainly in the children’s wear and kids’ space. This week alone saw the expansion of Bharara’s content platform Some Spider, which acquired the highly trafficked parenting destination Scary Mommy, and the launch of Primary by Galyn Bernard and Christina Carbonell that is a direct-to-consumer e-commerce destination for children’s clothing.
Scott Friend, managing director of Bain Capital Ventures, said Quidsi — like DoubleClick and Rent the Runway, which are also Bain investments like Jet — has incubated so many start-ups because it “created a unique culture of high performance people with that rare blend of superstrong interpersonal skills and hyper-focused analytical skills, as a result of its founders. Lore is the ultimate entrepreneur — he has an intuitive feel for the customer, a playbook for a business model that others might say can’t possibly exist, and an ability to go from inspirational vision to highly specific detail in no heartbeat. And he, like Jenn Hyman at Rent the Runway and David Rosenblatt at DoubleClick, attracted a team of young and hungry professionals who mirrored those qualities. It’s not surprising that many of them subsequently go on to be great entrepreneurs themselves.”
Bernard, Primary’s ceo, and Carbonell, the site’s chief operating officer, were early members of Quidsi (the latter was the third employee), and led retail and marketing for Diapers.com, helping drive the company from $11 million in revenue to more than $500 million.
From there, Bernard launched and ran three kid-centric brands and Carbonell started nine more e-commerce sites in the toys, home, children’s and clothing verticals. The two stayed on at Amazon post-acquisition of Quidsi for two years before venturing out on their own.
With Primary, Bernard and Carbonell are taking what they learned and filling a hole in what’s considered to be a very fragmented market. The two raised $2.5 million from Homebrew and Harrison Metal, as well as another $750,000 in venture debt from Western Technology Investment to build a destination for “busy parents who need to buy essentials.”
Consumers can think of Primary.com as an Everlane for babies and kids up to size 10 — a site that sells basics for children. Everything retails for under $25, which is 25 to 50 percent less than similar options from Gap or J. Crew’s Crewcuts, according to Bernard and Carbonell. There are 32 styles that each come in several color options, with an opening price point of $10 for baby onesies and boys’ and girls’ T-shirts.
“We are marketing Primary as a true solution, not unlike marketing Diapers.com,” Carbonell said, adding it seems harder than it should be for parents to replenish core items in their children’s wardrobes — whether this means adding more colors or sizing up.
Unlike many of Primary’s vertical online peers that have popped up over the past few years and are quickly establishing physical retail footprints — Warby Parker and Bonobos among them — Primary has no plans to put down brick-and-mortar roots. The company will remain an online-only player that sells evergreen styles with higher stock levels than their more trend-driven counterparts. The idea is that a parent shouldn’t be inconvenienced, especially if all they need to do is pick up some fresh white Ts for their kids.
Because there will be no off-line presence, Bernard and Carbonell — marketers by background — have devised a strategy to acquire customers that starts with a network of family friends that have early access to the site. Primary will use paid search, retargeting and affiliate marketing online, and will start to test with direct mail, mini catalogues and insert programs with partners off-line. Additionally, they will couple social media outreach and partner with influencers to spread the word.
Then there’s Some Spider. Bharara might be moving away from the commerce world (he’s still an early investor in Jet), but he’s focusing on the same demographic as Primary and Diapers.com. He established media company Some Spider last fall, which operates multibranded sites that produce content intended for a very targeted audience, such as The Mid and the recently acquired Scarymommy.com.
Calling it a “replication of what we did in commerce at Quidsi,” Bharara is starting out in a sector he knows well: the parenting world. Scary Mommy already has 10 million unique visitors a month and caters to parents with young children, and The Mid is a lifestyle parenting space for people whose kids are out of diapers. A third site, Cafe.com, will launch in the fall, but Bharara is vague on what demographic it will target (he clarified that The Mid originally was named Cafe, but the name was changed a few months in).
Bharara has personally financed the project to date and plans to start fund-raising in May or June. In addition to revealing the Scary Mommy acquisition on March 30, he named Paul Smurl, previously head of digital at The New York Times, chief operating officer and president of Some Spider.
Bharara confirmed that advertising will be part of the revenue model but is elusive when it comes to other ways his media entity will make money. He said relationships and loyal engagement will eventually drive revenue, but again, won’t divulge more on how this will help generate profitability.
“If you have a relationship you can do a lot to monetize that, and it’s not just ads that are in the future. It [advertising] is not enough but it’s important,” Bharara said. “Even Amazon — as a commerce player — has a large chunk of its bottom line revenue that comes from advertising. But if you want to really optimize, you need to look to other sources of revenue. You can’t focus on page views exclusively; you have to focus on these relationships.”
He contended that a blurring between content and commerce is taking place. Commerce companies are increasingly producing content, and sites like Some Spider, Primary and Jet are all trying to do similar things.
“What is the cost to acquire an engaged relationship and how will you monetize that? We all come at that at different angles, even Amazon,” Bharara said. At Some Spider, it’s about engaged readers, at Primary it’s gaining repeat customers who keep shopping with the site, and at Jet, it’s growing a subscription base with loyal members, he said.
Lore told WWD last week that the site has more than 400,000 people who have requested to become trial members of Jet.com, which is being painted as an anti-Amazon by the industry thus far. Instead of Amazon’s price-fixed model, Jet’s prices drop if a consumer opts to combine orders or choose to buy from a local retailer.
The site’s revenue model hinges on the $49.99 yearly fee members will pay to access Jet’s real-time trading system, which already counts 400 retailers large and small as partners, including BabyAge, FragranceNet, PureFormulas and eBags. After spending a decade in the e-commerce space, Lore wanted to do something about the fixed-pricing model that existed online. He explained that regardless of the underlying economics, there is one price for a product.
“I remember looking at a chart that showed profitability on a customer. The same product was sometimes very profitable and sometimes not profitable. The range is so huge,” Lore said, noting that variables like articles of clothing shipping separately (versus in the same box) or an item coming from far away cause profitability to dip.
He wants to solve this problem and show consumers in real time so they can hopefully “steer themselves towards economically efficient options because prices were lower.”
On the back end, he said, the site looks more like a trading system than an e-commerce site. The reason for this is that Jet is repricing every product as the consumer is shopping — based on location, what they are buying and more — all the while being as transparent as possible about what the true costs are. For example, a consumer shopping for a particular fragrance in Chicago might get it cheaper from a retailer that is around the corner than if it has to be shipped across the country.
Although reluctant to discuss Amazon, his views on profit seem to mirror those of Jeff Bezos: He hopes that Jet doesn’t make a profit anytime soon.
“I think people and investors fixate so much on profitability, but it’s the profitability at the unit level [that matters],” Lore said. “If I can acquire one customer for $50, and make $250 profits [from them] over the next five years then you would want to do that.”
Lore said he can’t make a profit until he flattens marketing costs, which hopefully won’t be for a long time. When it starts costing $100 in customer acquisition costs to make $250 and eventually $200 to make $250, he will stop.
“I’ll be penetrating the market to such an extent that I won’t be able to keep buying customers forever. The goal is different. It’s not when is it profitable, it’s how do you get the unit economics profitable and go as long as possible with those unit economics,” Lore said.
For him, if an organization’s economics are positive, overall profitability in the short term doesn’t matter. The team is already at 150 and hiring at a rate of about 30 new employees a month.
“If you’re just an investor and you’re seeing that you can buy a customer for $50 and they generate $250 in profits, wouldn’t you tell the company, ‘I’ll keep giving you money if they can keep doing this,’” Lore said. “Whenever you want to flatten it, the profits are going to come.”