WHEN: Today, Tuesday, July 21st
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a FIRST ON CNBC interview with Jet.com Founder and CEO Marc Lore on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today. Following is a link to video from the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000399355.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: WE'VE GOT TO INTRODUCE A NEW GUEST TO THE TABLE. WATCH OUT AMAZON. THERE'S A NEW PLAYER IN THE E-COMMERCE GAME. AFTER A LOT OF BUZZ, JET.COM WENT LIVE THIS MORNING. THIS IS A NEW PLATFORM THAT AIMS TO GIVE MORE POWER AND PROFIT TO MERCHANTS. IT HAS SET ITS SIGHTS ON A LOFTY BENCHMARK. JET PLEDGING TO REACH $20 BILLION IN REVENUE AND 15 MILLION USERS BY 2020. LET'S HEAR FROM THE MAN BEHIND THE MISSION. MARK LORE'S THE FOUNDER AND CEO OF JET.COM. HE'S ALSO THE FOUNDER OF QUIDSI, THAT WAS THE PARENT COMPANY OF DIAPERS.COM AND SOAP.COM, WHICH AMAZON ACQUIRED FOR $550 MILLION IN 2010. YOUR PARTNER IN THAT WAS THE BROTHER OF PREET BHARARA. LITTLE QUICK FACTOID FOR THOSE PAYING ATTENTION. GOOD MORNING.
MARC LORE: GOOD MORNING.
SORKIN: SO WHAT THE HECK ARE YOU TRYING TO DO HERE? AND HOW ARE YOU GOING TO TAKE ON AMAZON?
LORE: WE'RE NOT LOOKING TO TAKE ON AMAZON, BUT IT'S A SHOPPING CLUB THAT ALLOWS YOU TO SAVE ON EVERYTHING YOU ALREADY BUY. FROM TOOTHPASTE TO TVs, SMALL SIZES, LARGE SIZES, YOU CAN SAVE 10% TO 15% VERSUS THE LOWEST PRICES ONLINE.
MICHELLE CARUSO-CABRERA: I INTERVIEWED YOU BACK WHEN YOU DID A ROUND OF FUND RAISING – YOU WERE ON THE HALFTIME REPORT. IF I REMEMBER CORRECTLY, THE TRADEOFF IS, IF I'M AN AMAZON PRIME MEMBER, I'M GOING TO GET THIS IN TWO DAYS. WITH YOU, I GET IT CHEAPER WITH YOUR SERVICE.
LORE: YEAH, YOU SPEND $50 A YEAR AND THE IDEA IS THAT YOU'LL SAVE HUNDREDS DOLLARS A YEAR VERSUS THE LOWEST PRICES ONLINE.
CARUSO-CABRERA: RIGHT. BUT I DON'T GET IT IN TWO DAYS. I GET IT OVER WHENEVER.
LORE: ALL OF YOUR EVERYDAY ESSENTIALS YOU GET IN ONE OR TWO DAYS. AND THEN EVERYTHING ELSE, TWO TO FIVE DAYS.
SORKIN: OK, SO HERE IS THE THING I DON'T GET ABOUT THIS. WHAT I DON'T GET IS HOW YOU CAN OFFER LOWER PRICES AND STILL MAKE A PROFIT THAN AMAZON, WHICH IS CLEARLY BUILT IN INFRASTRUCTURE, HAS A RELATIONSHIP WITH THE MERCHANT IN A WAY THAT YOU CAN'T. AT LEAST NOT YET.
LORE: YEAH, TWO WAYS THAT WE DO IT. FIRST, WE ONLY PROFIT FROM THE $50 MEMBERSHIP FEE. SO ALL THE PROFIT WE MAKE ON SELLING PRODUCTS WE PUT BACK INTO PRICE. ALL THE COMMISSION WE GET FROM THIRD PARTY MERCHANTS GOES BACK INTO PRICE. THAT'S FIRST. SECOND THING IS WE BUILT THIS PROPRIETARY TECHNOLOGY THAT ACTUALLY PULLS COST OUT OF THE SYSTEM. WE ARE PULLING SUPPLY CHAIN COSTS OUT OF THE SYSTEM.
SORKIN: BY DOING WHAT?
LORE: DYNAMICALLY REPRICING PRODUCTS AS YOU SHOP TO REFLECT THE TRUE MARGINAL COST OF GETTING THAT PRODUCT TO YOU. SO IF YOU HAVE TWO THINGS IN YOUR BASKET AND YOU SHOP FOR A THIRD THING, THE COST OF GETTING THAT THIRD PRODUCT TO YOU VARIES DRAMATICALLY BASED ON WHAT'S YOUR IN BASKET. IF WE CAN GET THAT THING TO YOU IN THE SAME BOX IN CLOSE PROXIMITY TO YOU, THE SHIPPING COST IS MUCH LOWER.
CARUSO-CABRERA: AM I GOING TO SEE THAT AS A CUSTOMER? IF I HAD INSTEAD PUT THAT IN MY BOX FIRST, WOULD IT HAVE BEEN A DIFFERENT PRICE? YOU SEE WHAT I'M SAYING?
LORE: YEAH, NO, IT DOESN'T EFFECT THE ORDER. ALWAYS LOOKING AT THE MARGINAL CONTRIBUTION OF THE PRODUCT YOU SEARCH FOR. BUT YES, AS A CONSUMER, YOU'RE EMPOWERED TO PULL COSTS OUT OF THE SYSTEM. WE MAKE ALL THE SUPPLY CHAIN COSTS TRANSPARENT IN THE FORM OF LOWER PRICES. AND SO CERTAIN ITEMS WILL BE CONSIDERED SMART ITEMS AND WILL HAVE BETTER PRICING. AND WE'RE GOING TO SORT OF STEER YOU TO THOSE ITEMS.
SORKIN: OK EXPLAIN THIS. THIS IS A "WALL STREET JOURNAL" STORY THAT SAYS THERE ARE PRODUCTS THAT YOU DON'T SELL OR YOU DON'T KEEP IN INVENTORY. AND SO YOU HAVE PEOPLE THAT ARE ACTUALLY GOING OUT AND EFFECTIVELY BUYING THEM FROM OTHER PEOPLE AND YOU'RE LOSING MONEY ON EVERY SALE THAT YOU DO LIKE THIS.
LORE: THAT'S CORRECT. THERE'S A SMALL PERCENTAGE OF PRODUCTS TODAY THAT WE'RE GETTING FROM THIRD PARTY MERCHANTS THAT AREN'T DIRECT MERCHANTS ON THE PLATFORM. BUT THAT'S SIMPLY A BRIDGE TO SCALE. SO WE KNOW THAT WE'RE GOING TO HAVE THOSE PRODUCTS ON THE PLATFORM SOON AND WE DON'T WANT TO DISRUPT THE CONSUMER VALUE PROPOSITION TODAY.
SORKIN: SO HOW MUCH ARE YOU LOSING ON EVERY SALE TODAY AND HOW LONG CAN IT GO ON FOR? AND IS THIS – YOU KNOW, THIS IS WHEN YOU START THINKING ABOUT THE TOP OF SORT OF THE DOTCOM BUBBLE. THERE WERE A LOT OF COMPANIES OUT THERE, THEY WOULD LOSE MONEY ON EVERY SINGLE SALE AND YOU'D SAY, WELL HOW IS THIS REALLY GOING TO WORK?
CARUSO-CABRERA: CASH BURN, CASH BURN. RIGHT.
LORE: YEAH, THE MARKET SIZE IS VERY DIFFERENT THAN IT WAS BACK THEN WITH $300 BILLION ONLINE GOING TO $1.2 TRILLION IN TEN YEARS. THIS IS A MASSIVE MARKET. WE KNOW THE COSTS IT TAKES, WE KNOW WHAT SCALE LOOKS LIKE. WE KNOW HOW MUCH CAPITAL IT IS GOING TO TAKE TO GET THERE.
SORKIN: SO WHAT IS SCALE? HOW LONG CAN YOU GO?
LORE: $20 BILLION. AT $20 BILLION IN REVENUE, YOU'RE AT SCALE. THE MODEL IS ECONOMICALLY VIABLE. AND WE KNOW PRECISELY HOW MUCH CAPITAL IT IS GOING TO TAKE TO GET THERE.
SORKIN: HOW MANY CUSTOMERS DOES THAT REQUIRE?
LORE: IT'S ABOUT 14 OR 15 MILLION CUSTOMERS.
SORKIN: 14 OR 15 – AND HOW MUCH MONEY DO YOU HAVE IN THE BANK?
LORE: TODAY?
SORKIN: BECAUSE YOU'RE GOING TO BE BURNING THROUGH CASH IT SOUNDS LIKE.
LORE: YEAH, WE HAVE $180 MILLION IN THE BANK TODAY. AND YES, WE'RE GOING TO NEED ACCESS TO MORE CAPITAL AT SOME POINT IN THE FUTURE.
SORKIN: HOW MUCH CAPITAL WILL YOU NEED TO ACTUALLY MAKE THIS MODEL WORK? BECAUSE YOU LOOK AT JEFF BEZOS, BY THE WAY, HE'S NOT MAKING MONEY EITHER. I MEAN, THE STOCK MARKET – YOU KNOW, INVESTORS SEEM TO LIKE IT. BUT FOR SOME REASON I DON'T UNDERSTAND PARTICULARLY. I MEAN, IT'S A VERY INTERESTING COMPANY, BUT –
LORE: LET'S SAY THIS. THE AMOUNT OF CAPITAL WE NEED IS A FRACTION OF THE VALUE WE'LL CREATE WHEN WE GET THERE.
CARUSO-CABRERA: HAVE YOU SPOKEN WITH JEFF BEZOS? I MEAN, YOU OBVIOUSLY KNOW HIM –
LORE: NOT RECENTLY, NO.
SORKIN: DO YOU KNOW – DOES HE HAVE A VIEW ABOUT THIS?
LORE: I DON'T KNOW.
SORKIN: OK SO JUST GO BACK TO THE BUSINESS MODEL FOR A SECOND. HOW MANY YEARS?
LORE: FIVE YEARS.
SORKIN: IT TAKES YOU FIVE YEARS –
CARUSO-CABRERA: TO GET YOUR $20 BILLION IN REVENUE.
LORE: BUT THEN THE OPPORTUNITY IS THIS IS $1.2 TRILLION MARKET IN TEN YEARS. THERE'S AN OPPORTUNITY HERE TO CREATE A MULTI-HUNDRED-BILLION-DOLLAR BUSINESS. SO YEAH, THERE IS PLENTY OF UPSIDE ONCE YOU GET TO $20 BILLION. THAT'S THE IDEA.
CARUSO-CABRERA: SO ARE YOU RELYING ON TAKING MARKET SHARE FROM AMAZON OR ARE YOU RELYING JUST ON THE FACT THE MARKET IS GOING TO GROW SO SUBSTANTIALLY?
LORE: WE'RE GOING TO ADD $900 BILLION ONLINE IN THE NEXT TEN YEARS.
CARUSO-CABRERA: "WE" YOU MEAN COLLECTIVELY AS A POPULATION
LORE: COLLECTIVELY. YEAH AS A POPULATION.
CARUSO-CABRERA: HERE IN THE UNITED STATES.
LORE: IN THE U.S. ALONE. YEAH.
SORKIN: MEANWHILE, YOU HAVE AMAZON AND WALMART AND OTHERS WHO ARE GOING TO BE INVESTING IN INFRASTRUCTURE, GETTING THE PRODUCT TO YOU, FORGET ABOUT IN A DAY OR TWO. THEY'RE NOW TRYING TO GET YOU THE PRODUCT IN AN HOUR. IN FIVE YEARS FROM NOW, DOES THIS MODEL EVEN LOOK COMPETITIVE ON A RELATIVE BASIS?
LORE: WHEN YOU'RE GETTING THE PRODUCT FASTER, AN HOUR, TWO HOURS, THAT'S EXPENSIVE. YOU'RE ADDING COSTS TO THE SYSTEM. WHAT WE'RE TRYING TO DO IS EDUCATE AND TRAIN PEOPLE HOW TO PULL COST OUT OF THE SYSTEM. SO BUILDING BIGGER BASKETS, SMARTER BASKETS TO SAVE MONEY. THIS IS NOT GOING AFTER THE PRIME CUSTOMER.
CARUSO-CABRERA: BUT ULTIMATELY, IT COMES BACK TO MY ORIGINAL QUESTION, WHICH IS YOUR VALUE PROPOSITION IS THAT YOU'RE ASSUMING CUSTOMERS WILL WAIT FOR CERTAIN PRODUCTS LONGER. AND THEY ARE WILLING TO DO THAT AND HENCE – AS OPPOSED TO ME, I LIKE EVERYTHING YESTERDAY.
LORE: NOT NECESSARILY. THERE'S 90 MILLION HOUSEHOLDS IN AMERICA THAT DON'T HAVE PRIME AND THIS IS GOING TO BE THE FASTEST AND CHEAPEST SHIPPING OPTION FOR THOSE HOUSEHOLDS. SO TAKE PRIME OUT OF THE EQUATION, THIS IS AN AMAZING VALUE PROPOSITION.
SORKIN: IF I GO ON THE PLATFORM RIGHT NOW, WHAT AM I GOING TO SEE?
CARUSO-CABRERA: I'M ON THERE RIGHT NOW.
SORKIN: WHAT DOES IT LOOK LIKE?
CARUSO-CABRERA: IT'S PURPLE.
SORKIN: AND WHAT SHOULD I BE BUYING? WHAT'S ON SALE TODAY?
LORE: THERE'S NOTHING ON SALE. IT'S EVERYDAY LOW PRICE. THERE'S MILLIONS OF PRODUCTS. THE PRICES ON THE SITE ARE, LIKE I SAID, 10% TO 15% BELOW WHAT YOU WILL FIND ANYWHERE ELSE. AND AS YOU START TO BUILD A BIGGER BASKET, THE PRICES WILL COME DOWN. AND IF YOU ARE CHOOSING SMART CART ITEMS, IT WILL COME DOWN EVEN FURTHER.
CARUSO-CABRERA: I LOOK FOR THINGS LIKE SNEAKERS. YOU DON'T HAVE THAT. THERE'S A LOT OF STUFF YOU DON'T HAVE THAT I COULD GET ON AMAZON.
LORE: YEAH, THE WHOLE FASHION CATEGORY IS LAUNCHING IN ABOUT TWO WEEKS. RIGHT NOW, YOU CAN SAVE ON SITES LIKE SEPHORA AND ANTHROPOLOGIE AND ALL KINDS OF OTHER SITES. SO WE ACTUALLY JUST SEND YOU TO OTHER RETAIL SITES OUT THERE TO BUY SHOES AND CLOTHES NOW FOR THE NEXT COUPLE WEEKS.
SORKIN: GOT IT. LOOK, IF YOU'RE LOSING MONEY ON EVERY PURCHASE, AS A CUSTOMER I HAVE TO LIKE THAT. HOW MUCH ARE YOU GOING TO LOSE? WHAT'S YOUR AVERAGE BURN FOR EACH SPEND?
LORE: EACH SPEND TODAY?
SORKIN: YEAH, EACH ORDER.
LORE: YEAH, IT'S ABOUT TODAY ABOUT 20%.
SORKIN: 20%. OK. SO THAT IS A 20% DISCOUNT FOR EVERYBODY.
LORE: BUT THAT GAP CLOSES OVER THE NEXT 5 YEARS AND LIKE I SAID, THE AMOUNT OF CAPITAL WE NEED TO GET TO SCALE IS A FRACTION OF THE VALUE WE'LL CREATE WHEN WE GET THERE. E-COMMERCE IS A SCALE GAME. THAT IS WHAT IT IS.
SORKIN: RIGHT. AWESOME. THANK YOU FOR COMING IN. WE WISH YOU ALL THE LUCK WITH IT. THE MORE COMPETITION THE BETTER.
LORE: THANKS SO MUCH.
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