Recently I read a Motley Fool article about how Costco could expand to be even bigger and it got me thinking. As you may be aware, Costco has really been doing extremely well, despite the recession. Even though other retailers have seen business turn downwards and earnings fall in the last few years, Costco has managed to buck that trend. But can they keep it up? Can they just keep depending on getting more members and having them spend more and more during their shopping trips? Is there more that they could do? Would they be better off putting typical retail practices into effect? The author of the article tries to address how they think Costco could expand at a quicker pace, and without just depending on more Costco members to spend more per shopping trip.
So, the author suggests there are three ways that Costco can expand its business:
- Bookmark Costco.com: You want more visitors, more frequently? Leverage Costco.com, one of the only virtual warehouses that comes anywhere near the variety you’ll find at Amazon.com.
- Stay home: Lest the online strategy chip away at the warehouse-and-membership model that has brought Costco this far, Jelinek and Co. need to home in on scouting out domestic store locations, putting international expansion plans on the back burner.
- Promote the brand: It may seem like everyone has heard of Costco, but the company has no official advertising strategy beyond targeted home mailings.
With regards to the first suggestion about leveraging Costco.com, the author says that they have never shopped at Costco.com, also implying that they haven’t visited the site either; it seems the author assumes that no one else has visited either. Unlike the author, I’ve shopped at Costco.com quite a bit and have talked to a lot of other members who use it quite often as well. Since Costco.com has an Alexa Traffic Rating of 181 in the US, it can be assumed that they are getting a good number of visits and pageviews each month (on other sites that I am iffy about trusting, I have read numbers of around 5 million visitors per month). From other Alexa data I can see that people spend about 5 minutes on the site and look at about 6 pages, on average. From my own experience, I can say that those stats uphold about how much time I spend on Costco.com when I’m buying things too. However, when I look at the sales information for Costco.com it isn’t that astounding and I’m sure it could be higher. E-commerce sales make up just 2.3% of Costco’s overall sales (according to RetailSails.com). Year on year there’s a pretty steady increase in online sales, 12.4% for 2011. It’s good that Costco.com has done an increasing amount of sales, however, they still don’t make up that big a part of the net sales for Costco. Is this because Costco doesn’t really want it to? Are they happy with getting this amount of sales from their online store? If they did want to make some changes, this might be ripe for expansion.
As I’ve mentioned in previous posts, I kind of have a love-hate relationship with Costco.com. I buy things there that I can’t find in my local warehouse, which is great. And I have certainly gotten some great deals online, such as the Hans Grohe bathroom taps that I purchased a few years ago. But the site’s usability isn’t the best and makes it hard to find products sometimes via the menus; I find the search is the most expedient way of getting around the site. Despite the appearance of having a lot of product categories, it doesn’t always seem like they have a huge selection of items though. Sometimes this is just because it is hard to find things with the menus (as mentioned previously) but sometimes it is just because they have a whole menu category and there are just very few items that fall into that category. Aside from a bit of a better approach to the site design, I think there are certainly things that they could add (or add back) to their Costco.com product line up that would make them more of an online shopping destination for members. Some additions that I think would be good: DVDs, CDs, software, shoes, clothing, makeup, vitamins and OTC medications – in short things that people buy more often and things that you might like to purchase in between trips to the local warehouse. I know that Costco.com has started to add in items like vitamins and OTC medications to a bigger extent. They have also started to carry more items that will appeal to small businesses that are buying in bulk, like bottled water and toilet tissue. But why aren’t they using Costco.com to sell more of their own Kirkland Signature brand items? They do have KS items on the website, but certainly not the whole product lineup, which seems very odd to me.
I especially think that selling more clothing online would be very useful to their sales. I buy clothes at Costco all the time and can understand that they have local variations in styles and colors that they sell in different parts of the country. However, what is the reason for not selling their own Kirkland Signature brand through Costco.com? That makes very little sense to me. I would probably buy more of their sweaters, men’s dress shirts and trousers, jeans, socks, workout wear, etc. if I could more easily locate different colors and/or sizes. Sometimes it is so difficult to dig through the tall, tall stacks of clothing for the right size that Dave and I just give up. So, we would like to buy those items but the fight to find the right size is so annoying that we end up not making a purchase, which is never a good thing in retail I’m pretty positive. And I’m guessing that we’re not the only ones to have felt that frustration. I would much prefer it if I could just go online and pick the right sizes and be done with it. With the growing lineup of Kirkland Signature branded clothing, as well as other products, it really makes no sense to not sell those through Costco.com as well as in the warehouses.
Of course, for me to buy things online would mean that Costco.co.uk would actually need to have an online store. It’s here that I should mention that when talking about Costco.com, I also include Costco.ca, which is their only other e-commerce site currently, and has pretty much the same problems. But think about all of that business that they are passing up by not having e-commerce sites in the other countries where they have a local Costco presence. Mexico, Korea, Taiwan, Japan, and Australia – none of these countries have online stores to compliment their Costco warehouses. I talk to a lot of people in the UK that don’t understand why you can’t shop at Costco online here because they would certainly do it if they could. And since pretty much every other supermarket and department store in the UK has an online store, Costco.co.uk is falling increasingly behind.
Wow, I didn’t realize I was going to write so much about just this one point. So, I guess I will continue the discussion tomorrow with my views on foreign expansion. Meanwhile, feel free to comment and share your thoughts on Costco’s online e-commerce strategy and how they could use it more effectively or not.
Update, Feb 22, 2012: I realized last night that I should have mentioned how they should really start using Costco websites to allow people to order cakes and deli trays more easily too! That would be really appreciated by members if you could place an order without the need to physically go to the warehouse.
To read the full Motley Fool article: