Suggestions for Costco on Expansion: Part 1, E-Commerce

February 21st, 2012 · 14 Comments

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:

  1. 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.
  2. 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.
  3. 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:

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14 Responses so far ↓

  1. 1 Trina // 2016.04.13 at 6:35 pm

    We need a Costco in Joplin Missouri. 1 Sam’s +boatloads of people = long lines and agitation! Springfield,count yourself lucky for having 2 Sam’s. Weekends are ridiculous in Joplin at Sam’s. PLEASE

  2. 2 Jmoney // 2016.03.22 at 8:57 pm

    Please come to springfield I will work there and spend 50% of my income there please!

    • 3 Jesse mough // 2016.06.20 at 10:33 am

      Please, Costco needs to open a location in Springfield Missiuri. During these rough economical times in the United States Springfields economy has flourished. It has been a fast expanding city. Menards is building two new locations in Springfield, because Lowes and Home Depot have took the majority of sales here. Sam’s Club and Walmart (same company) have enjoyed a monopoly empire here in Springfield. Sam’s has been so dominate that they have risen prices up so high due to high demand. Springfield locals are fed up with Sam’s and need a business like Costco. Costco would flourish here in Springfield.

  3. 4 Paul Primas // 2015.06.05 at 2:01 pm

    I have called and talked to the woman in charge of new stores. As of May 2015 they are not going to open in the Springfield area. You are right that there is a lot of area around Springfield 100 miles or less that they could draw from. Every store is over 150-200 from Springfield that is open now. Costco come to Springfield NOW> PP

    • 5 Susan // 2015.12.19 at 6:10 pm

      Springfield is to “red” for Costco. That’s my opinion. As I travel frequently and also due to my husband’s job demands, we have lived in very diverse areas (from top planned communities to states with industrial areas experiencing flat growth). I’ve been shocked as to where Costco decides to setup shop. Of course that is just my opinion. There is no sensible reason for Costco to avoid SW MO or even Oklahoma.

  4. 6 Suggestions for Costco on Expansion: Part 3, Marketing | Addicted To Costco! // 2012.02.23 at 10:25 am

    […] 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. (Part 1 post) […]

  5. 7 Claire // 2012.02.22 at 5:53 pm

    Can you do a further analysis how Costco needs to improve the displays for its clothing and book section. Boy, do I agree with you that it is so hard to find the right size when you are in the Costco clothing section. Women’s jeans, geez, that area is a total disaster! Especially during the weekends, the books and clothes get strewn everywhere, making it difficult to find anything. The poor Costco employee cannot keep up with all of the different customers who are messing up the displays during those times. I also feel that these items take up a huge footprint in the store, but could be displayed in a smaller space, in a more coherent fashion. There has to be a better way of selling these items besides folding neatly. Have more signs, put the books in dispensers, and clothes on hangers? I agree with you that selling these items online may be one solution, but personally I am not so enthusiastic about that, as I feel I create so much environmental damage with all of the cardboard boxes already mailed to me. I just want to buy these items in the warehouse. Come on, Costco, hire more marketing people! You can afford it, your in-store margins will increase, and the economy needs more hires!

  6. 8 Suggestions for Costco on Expansion: Part 2, International Expansion | Addicted To Costco! // 2012.02.22 at 8:29 am

    […] RSS privacy policy archives guest posts costco locations costco coupons about home ← Suggestions for Costco on Expansion: Part 1, E-Commerce […]

  7. 9 Hope Smith // 2012.02.21 at 9:11 pm

    I shop a lot on costco.com because there is no warehouse within 250 miles of me (I’ve written to their corporate office many times asking them to build a store in the Springfield, MO/Branson, MO corridor, which would draw shoppers from Arkansas, Kansas and Oklahoma, too; but my please have gone unanswered as they open a multitude of stores in faraway places).

    I ditto your remarks about carrying more warehouse items online. I spend thousands on amazon.com every year and I find it very strange that I have to go to Amazon to buy my yummy Kirkland Signature European cookies!!! costco.com is the only site other than amazon.com that I trust and I especially appreciate the “shipping/handling included” feature, because that puts them on a par with amazon.com.

    • 10 Kimberly // 2012.02.22 at 5:26 am

      @Hope – Sorry you’re so far from a Costco. Springfield or Joplin both seem like they would be good places to have a Costco because you could draw from a wide shopping area, maybe even some of those people from Tulsa that are always asking for a Costco.

  8. 11 Janice // 2012.02.21 at 4:41 pm

    Publicize the fact that you can purchase Costco cash cards on line with other forms of payment besides American Express. However, there is a fee for this. Since credit cards customers are limited at the store to only purchase cash cards with American Express or cash/check, at least this little realized fact might let businesses know this is a way they can reward employees, etc. or for consumers who are limited as to which credit cards they can use.

    For that matter, publized the fact that Costco.com accepts form of payment for all items with different credit cards besides American Express.

    • 12 Kimberly // 2012.02.22 at 5:23 am

      @Janice – That’s a good point about the gift cards. They should also make it more obvious to people that you don’t have to be a Costco member to shop at Costco.com. Of course, non-members do have a 5% surcharge, but still for things like gift cards that might be an added enticement as well. That way you could buy a gift card for someone but not necessarily be a member yourself.

  9. 13 Mike // 2012.02.21 at 11:00 am

    The Fool article starts with “But as an investor, I think the company is going down the wrong aisle when it comes to growing the business.” I have to say phooey to that. The worst thing about publicly traded companies is this sentiment. Costco is thriving and I look forward to going each week. I like their prices and products. But as I said in my editorial, I hope the new CEO, despite being picked by Sinegal, doesn’t think like this person, or like regular CEOs (that is, with his dividends).

    • 14 Kimberly // 2012.02.21 at 11:08 am

      @Mike – I agree with you! I’ve got a bit of Costco stock (not that much certainly but a bit) and I think if sales and profit numbers are going up and people still like the store, that’s good for me as an investor. I don’t need them to have phenomenal growth that will possibly end up being unsustainable, like so many publicly traded companies. I think they’ve got a good business plan, it seems to be working for them, and that is good for me as both an investor & a customer. They’re the best stock in my portfolio right now, so clearly, they know more about what they are doing than most of these people that make comments about them not growing their business ‘correctly’. I have faith that the new CEO, Craig Jelinek, knows what works & that ‘thinking with his dividends’ isn’t right for Costco.

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