Here's why Costco's e-commerce is growing – Business Insider


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Costco reported its fiscal Q2 2018 earnings (ended February 2018), posting net sales of $32.28 billion, up 10.8% year-over-year (YoY).

The wholesale retailer’s comparable sales were up 8.4% YoY, and Costco’s e-commerce outpaced the company’s overall growth, climbing 28.5% YoY to $1.5 billion. This e-commerce growth is an improvement on the company’s fiscal Q2 2017 performance of $1.17 billion and 12% growth YoY.

Costco has been slow to embrace e-commerce, but it has started to take it seriously, and the delay has created easy opportunities for Costco to grow. The wholesale retailer has previously been brick-and-mortar focused, largely because Costco believes, at least as of April 2017, that consumers will buy more when they go to a store.

This belief has likely slowed Costco’s investment in e-commerce, but the company has focused in on it recently with new initiatives. And the fact that it was so behind may be making it easy to improve in the short-term, as there is a lot of “low-hanging fruit,” according to CFO Richard Galanti, giving Costco easy and obvious ways to bolster its e-commerce offerings.

The wholesale retailer has improved various offerings with features that are essentially table stakes for e-commerce in retail, but, because Costco was behind, they’re making a huge difference.

  • Delivery: Costco began offering two-day delivery on nonperishable items on orders of over $75 in October 2017, and expanded its same-day online grocery delivery program with Instacart to more locations. Many retailers have offered similar services for a long time, but adding them now is pushing Costco’s e-commerce performance forward.
  • Marketing: The retailer has seen improved results from its e-commerce marketing, pushing ‘while supplies last’ types of promotions that are not revolutionary, but are new for Costco.
  • Omnichannel: In approximately 195 stores, Costco has given its store associates tablets to facilitate online orders, making omnichannel transactions easier for the retailer and consumers.

Catching up to others has worked for now, but with competing wholesalers focusing on digital themselves, Costco will need to keep improving if it wants to avoid falling behind again.

  • Sam’s Club has added free shipping with no order minimum for its “Plus” membership, teamed up with Instacart to offer same-day shipping to all consumers in select markets, and is turning 10 to 12 closed stores into e-commerce distribution centers.
  • Boxed, an online wholesale retailer, is thriving with an estimated $500 million in annual sales, and is developing technological innovations to improve itself. It has also drawn interest from bigger retailers looking to acquire it, potentially creating a new and fearsome competitor for Costco.
  • BJ’s Wholesale Club has hired its first ever Chief Digital Officer as the company looks to bolster its e-commerce performance.

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