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Digital Transformation Amazon

How will help Walmart Costco-ify e-commerce


By Lisa Lacy | n/a

August 11, 2016 | 6 min read

Marc Lore may be the greatest e-commerce genius of our time.

In 2010, Lore sold parent Quidsi to Amazon for $545 million. From there, a flurry of e-commerce sites followed —,,, and — which, Quidsi says, “make Mom’s life easier with fast, free shipping…and one shared cart and checkout.”

But he wasn’t done there! Six years later, Lore is joining the Walmart family after selling another e-commerce property that, funny enough, offers baby, household, pet, toy and beauty products in a $3 billion deal The Wall Street Journal says is the biggest deal ever for a US e-commerce startup.

And while Doug McMillon, president and CEO of Wal-Mart Stores, called the deal “another jolt of entrepreneurial spirit being injected into Walmart,” there’s a little more to it.

A new shopping experience

The NFL's New York Jets may be mired in perpetual disappointment., however, launched in July 2015 more optimistically “with the vision of creating a new shopping experience,” Lore said in a statement. And central to that is technology that rewards customers in real-time with savings on items that are shipped together because it reduces supply-chain and logistics costs.

This, in turn, allows the David-like Jet to compete with Amazon’s Goliath on orders with multiple items. And now, in theory, Walmart has that advantage, too. the poor man’s Amazon

In a way, it’s sort of like Walmart versus Costco: Costco has better prices, but its selection is lighter. And while it is a smaller company overall — $75bn to Walmart’s $230bn market cap — Costco has still been able to realize meaningful market share because its consumers value low prices, said Ben Sun, general partner of Primary Venture Partners, which was an investor in Jet.’s problem was that it was trying to execute an Amazon-like strategy, but it was really “like the poor man’s Amazon,” Sun said. And, not surprisingly, that’s because Amazon has scale.

“It’s hard to beat them at that game,” Sun said. “Amazon is way ahead and growing much faster than”

Amazon’s Achilles heel

In other words, Jet competes with Amazon on price by incentivizing customers to buy multiple products, much like they do at Costco. Consumers don’t generally pop in to Costco simply to pick something up. Rather, a trip to Costco is far more often an excuse to stock up on myriad products.

“[Jet] realized the more you can put in one box, the more cost savings you have in shipping and you can pass that along to the consumer and drop prices lower than the person who ships one item in a box, which is what Amazon Prime does,” Sun said.

But, he noted, single-unit orders require a lot of optimization in fulfillment. And that, in turn, is carried out via an effort called Vendor Flex in which Amazon maintains its own warehouses within suppliers’ warehouses, like P&G. And so when consumers place single-unit orders for household goods that are bulky, inexpensive and don’t come with a high margin — like, say, diapers — Amazon simply has P&G roll those diapers over to its nearby warehouse, eliminating transportation costs and, as a result, Amazon doesn’t have to charge consumers extra to cover shipping fees.

This is a great system for Amazon and its single-unit orders, Sun noted.

However, when consumers place orders for multiple items that may not necessarily come from a single supplier, the order may ship in multiple boxes from multiple warehouses.

“That infrastructure is completely different — supporting one unit at a time versus optimizing for multiple units is really different,” Sun said. “If you’re competing against Amazon, you can’t compete on one pack of diapers. But you can beat them if you say, ‘You’ll get a better price on diapers if you throw in five other things in the box.’ Amazon can’t do that because their warehouse is attached to the P&G warehouse.”

And so e-commerce brands have to optimize fulfillment for either single- or multi-unit orders. And if it’s the latter, the brand, like Jet, has an opportunity to beat Amazon on price.

A familiar playbook

It’s a similar model to, which has thus far found a way to avoid the fate of dot-com era cautionary tale by offering free shipping on orders over $49. This, Sun said, inspired consumers who might only buy dog food to add additional higher margin items like chew toys and dog sweaters in order to qualify for free shipping.

But with Jet, this concept is on a bigger scale.

“You’re not just adding stuff to the cart that’s dog-related, you add your paper towels and your toothpaste and Hanes t-shirts,” Sun said. “You add as much stuff as possible — that’s where Jet is optimized. It’s a similar playbook.”

It’s also similar to the tendency of Costco customers to buy many low-priced goods at once. Costco has, in effect, trained its customers to buy bulk in bulk.

Amazon, too, has trained its customers in that consumers with Prime think about going to Amazon first when they want to buy something.

“When you’re thinking about buying diapers, you’re going to go there. When you’re thinking about buying a flat-screen TV, you’re going to go there and they want you to react that way,” Sun said. “When you have to buy something, they want you to go to Amazon first. And if you’ve already put $99 down [for Prime], you might as well use it.

Now, Jet — and Walmart — hope to train customers to think about online shopping in the same way they buy many low-priced goods at Costco in order to loosen Amazon’s stranglehold on e-commerce.

And there may be something to this. Per the acquisition announcement, Jet reached $1bn in run-rate gross merchandise value in its first year.

“I don’t think there’s ever been a company that has gotten to $1 billion in a year from its launch,” Sun said. “We’ve never seen anything like that.”

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