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Amazon Prime to Face Competition from Jet.com

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Sep. 3 2015, Updated 12:06 p.m. ET

Amazon’s dominance being challenged

Amazon (AMZN) has a new competitor, Jet.com, that aims to challenge Amazon’s dominance in the online retail space. Marc Lore, the founder of Jet.com, plans to carry out a massive marketing campaign in the coming months to lure customers from Amazon.

According to a report in the Wall Street Journal, the startup expects to have 15 million customers by 2020, which could generate revenue of ~$750 million.

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Jet.com promises the lowest prices online

The startup promises to offer prices that are 10%–15% cheaper than anywhere else on the Internet. Also, customers can save on the shipping costs when they add more items to their cart. Savings will depend on the nature of items shipped from the same warehouse and on the distance between the customer and the merchandise.

Customers could save more by choosing options like making payments with debit cards or being willing to wait for items to be shipped in the same package.

According to a report from eMarketer, and as the above chart shows, electronics, apparel, furniture, and healthcare are the four largest categories in the US retail e-commerce market. These are the four categories where Amazon’s prices were higher than Walmart (WMT) and Target (TGT), according to a report from the Wall Street Journal.

Which membership is more profitable?

Although the Jet.com membership fee is cheaper than Amazon Prime at $99 per year, Amazon customers give positive reviews to the Prime membership service. The Amazon Prime program has been responsible for driving Amazon’s North American 2Q15 operating margins.

As members, Amazon customers get free delivery of the goods they order from Amazon. Also, customers get free access to select videos through a video streaming service. This strategy gives Amazon an edge over eBay (EBAY), which doesn’t offer this kind of program.

In contrast, Jet.com charges a $35 minimum fee for orders over $35, offering free two- to five-day shipping and free returns within 30 days. As a result, Jet.com could be beneficial for bulk purchases and longer shipping times. Amazon is best suited for small orders and fast delivery.

You can get exposure to Amazon by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY). It has 6.10% exposure to the company.

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