With many retailers who rely on their bricks-and-mortar stores to provide the bulk of their sales and profits struggling, Costco is enjoying a healthy period of growth, with its strongest monthly same store sales increasing by 7.3% across all stores. This has easily beaten the Retail Metrics consensus estimate of 5.4%. In August, net sales went up by 10% to $9.8 billion from $8.9 billion last year.
Same store ecommerce sales in the month rose by 26% according to the company, after improving various functions of its ecommerce operation such as navigation, search and transactions and it has also advertised its website in stores.
Costco were an early entry into ecommerce, with their ecommerce chief Don Burdock being at the company since 1992 and the company going online in 1998. However, this early entry has not led them to engage with ecommerce as much as some of their rivals such as Walmart. In sharp contrast, Walmart, spurred on by Jet founder Marc Lore has been on an acquisition spree that as well as including Jet.com has seen them acquire Nebraska-based furniture e-retailer Hayneedle, online shoe retailer Shoebuy, outdoor retailer Moosejaw, women’s clothing retailer Modcloth and menswear site Bonobos.
If It’s Not Broke, Why Fix It?
On the one hand, “they have a business model that is working, so why break it?” says Robin Sherk, an analyst at consultant Kantar Retail. Yet “if Costco waits too long, they might find themselves too far behind.”
It’s understandable that Costco may be reluctant to go too far down the online road. Its warehouse club business model creates an in-store treasure hunt experience, something that is difficult and costly to replicate online.
“The way their business is set up, there’s no easy way to step into ecommerce,” says Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University’s Leavey School of Business. “The economics are not viable.”
Costco’s demographics are undoubtedly older too, with older people less likely to shop online, there’s no need to push quickly into the online arena. The fact is too that Costco shoppers enjoy the Costco shopping experience. Costco shoppers enjoy shopping there: They don’t mind hoisting a 20-gallon tub of mayo,” says independent e-commerce analyst Sucharita Mulpuru.
The Amazon Problem
However, could Costco’s reluctance to fully embrace online be their eventual downfall? One extremely worrying statistic is that 50% of all Costco shoppers are Amazon Prime members, up from just 14% five years ago. With the rate that Amazon is expanding and their recent takeover of the supermarket chain Whole Foods, it could spell big problems for Costco in the future, as could the manouverings of other rivals such as Walmart.