Market Overview

Will Jet Hurt Amazon Or Costco?

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A few days ago, Marc Lore, founder and former CEO of Quidsi (owner of famed website Diapers.com) launched a new e-commerce website Jet.com. The site guarantees its subscribers access to the lowest prices across approximately 10 million items.

After meeting with Lore, Morgan Stanley analysts Brian Nowak and Simeon Gutman look into the question of whether Jet is a threat to Amazon.com, Inc. (NASDAQ: AMZN) and Costco Wholesale Corporation (NASDAQ: COST) or not.

Related Link: Benchmark's Kurnos: It Wouldn't Shock Me If Amazon Bought Jet.com

How Big Is Jet Going To Become?

The experts first go into Jet’s potential size:

The company is targeting 14 to 15 million paying members (12 to 13 percent of all U.S. households) over the long-term – around 2020. This figure would represent about half of Costco’s base and 36-37 percent of Amazon Prime’s base.

While the analysts note this is possible, it “does means there will be some execution needed over the next few years for them to get to the scale and the success we’ve seen out of Costco and Amazon Prime.”

Having said this, the experts believe Jet will still be quite small in the overall ecosystem, and will not pose a big threat to Amazon. According to the firm’s calculations (see details below), the annual GMV could reach about $8.3 billion, which would represent just 2 percent of the current overall e-commerce market in the U.S. – or about 1 percent of the 2020 U.S. e-commerce market.

How Will Jet Become As Big As It Plans To?

Nowak and Gutman go on to assess how will Jet achieve its goals. According to the video-report issued Friday, they think retailers and merchants will have to cooperate with the company. "[T]he success of Jet does hinge on retail participation,” they note. “The more inventory partners Jet has, the more efficient the network will become.”

But, what’s in for retailers like Best Buy Co Inc (NYSE: BBY), Lowe's Companies, Inc. (NYSE: LOW), Wal-Mart Stores, Inc. (NYSE: WMT), Staples, Inc. (NASDAQ: SPLS), Home Depot Inc (NYSE: HD), and others?

“If they think that partnering with Jet will help them sell inventory they otherwise wouldn’t have sold, then they’ll do it. But, they’ve invested their own assets in fulfillment, in e-commerce… So, ultimately, we are not really sure if Jet.com is going to be able to sign up a big retail network,” they add.

Secondly, the analysts believe “retailers are better positioned than they get credit for.” The pick-up-in-store methodology (which 70 percent of customers are using when buying online) is a strong and effective tool that saves the company the last few miles of distribution.

Latest Ratings for AMZN

DateFirmActionFromTo
Feb 2018MKM PartnersMaintainsBuyBuy
Feb 2018NomuraMaintainsBuyBuy
Feb 2018Credit SuisseMaintainsOutperformOutperform

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Posted-In: Brian Nowak Jet Jet.comAnalyst Color Long Ideas Analyst Ratings Tech Trading Ideas

 

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