Delivery

Costco’s eCommerce Sales Rise 37 Percent In Q3 Amid Omnicommerce Push

Costco

As Costco amps up its omnichannel offerings, the warehouse club is seeing that its efforts are paying off: The retailer reported that total eCommerce sales were up 37 percent year over year as of the third quarter. In addition, the company’s eCommerce sales were up 43.1 percent for the four weeks in April.

The retailer’s two-day grocery delivery and same-day fresh delivery through Instacart, for example, “continue to grow nicely,” Costco CFO Richard Galanti said in the retailer’s post-earnings conference call on Thursday (May 31).

While that business only represents a small percentage of the total company, Galanti said, the company is seeing positive results in existing markets and some markets located further from the retailer’s brick-and-mortar: “We are picking up some members that we never had before because [they] were 1,500 miles away from the nearest physical Costco,” Galanti said later in the call.

Costco rolled out the same-day delivery service in October of last year. The delivery option is free for online orders exceeding $75 from 376 U.S. Costco stores, and orders are guaranteed within two business days. But orders totaling less than $35 are subject to prices approximately 15 to 17 percent higher than those found in-store, according to the Los Angeles Times.

The rollout was met with mixed reviews. Kelly Bania, analyst at BMO Capital Markets, noted the services were a positive step for Costco, which has been one of the few retail establishments to remain quiet in terms of technological innovation. “[But] we also see risk,” Bania had said. “These initiatives will weigh on margins over time and may be viewed as defensive.”

Though Amazon has repeatedly made news with its purchase of Whole Foods Market this summer, Galanti noted in October that the price cuts at the health food-based grocer were not impacting Costco’s bottom line nor its in-store prices.

The company hoped its two-day delivery offering would help it to fight off competition from Amazon and Walmart.

Beyond grocery delivery, Blue Apron is working with Costco on an experimental meal kit offering that were specifically designed for the retailer in its locations in the Pacific Northwest and the San Francisco Bay area. Blue Apron CEO Brad Dickerson said the on-demand meal kit pilot program builds on Blue Apron’s existing relationship with Costco (Blue Apron has a gift card business with Costco, for example).

In Store And Online

In terms of eCommerce efforts, Galanti said that Costco is continuing to improve its online merchandising services with hot buys and buyer picks as well as buy-online-pick-up-in-store. The eCommerce business has also allowed previously seasonal items to be sold over a longer period of time. For example, household furniture was historically only available in the retailer’s warehouses for 8 weeks per year, and now those items are online for all of the year, Galanti said.

In response to an analyst’s question about the overall selection on the Costco website, Galanti said that the site currently has around 10,000 stock-keeping units (SKUs) – and the company doesn’t foresee that number dramatically increasing. But is adding “velocity items” such as food, sundries, apparel and beauty, “which is getting people to open their e-mails … and think about coming back more often to take a look without us having to remind them.”

In terms of omnicommerce efforts, Galanti said the company has “eCommerce product showcases” in 220 of its roughly 520 locations in the U.S. — along with online ordering capabilities. And Galanti said that the retailer will roll out more omnicommerce offerings in its stores by the end of the year: “All U.S. locations will have something in place…by this year’s upcoming fall holiday season,” Galanti said.

Costco is hardly the only warehouse club retailer to double down on its omnicommerce efforts: BJ’s Wholesale Club, for example, brought a click-and-collect service to 215 of its brick-and-mortar locations as part of its efforts to enhance its customer experience. The service, dubbed “Shop BJs.com – Pick Up in Club,” allows shoppers to pick up their online orders as soon as two hours after placing them, Supermarket News reported in May. And, last fall, BJ’s rolled out its redesigned mobile app, offering customers an option built nearly entirely around an enhanced experience.

“The new mobile site is an important step in our omnichannel transformation,” Rafeh Masood, senior vice president and chief digital officer at BJ’s, stated at the time. “More and more members use their mobile devices every day, and enhancing the BJ’s mobile experience makes shopping more convenient for our members.”

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