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Costco Wants More to Go Clubbing Online

May 8, 2012

Costco is not a lightweight when it comes to selling online. The company generates $2 billion a year in sales and is among the top 20 online merchants in the U.S. That performance, while respectable, is not what the Costco organization expects of itself.

"Does it drive us crazy when others do a lot of business? Yes," said CFO Richard Galanti, on a conference call in February. "But we recognize we do some things they can't do and they do some things we are not going to do."

What Costco has done is begin to make changes to its website to make it more search engine friendly. It is also looking to expand the business to markets outside the U.S. Costco plans to introduce Android and Apple smartphone apps this month to give consumers more shopping options.

"A lot of other chain retailers, including Walmart, are doing things sooner, better and quicker, including going international," Mark Brohan, director of research for the International Journal of Electronic Commerce, told The Seattle Times. "Walmart has included Sam's Club in its aggressive plans for overseas online sales, including China, and Walmart is buying social-media companies to get hold of the always-connected buyer."

Costco is also looking to more actively cultivate existing club members into shoppers on its website. Currently, according to Ginnie Roeglin, senior vice president of Costco's e-commerce and publishing operations, roughly half of existing members are registered on the chain's site.


Discussion Questions:

Discussion Questions: How important is it for Costco to improve its online performance in light of consumer trends and steps being taken by competitors? What improvements do you think would have the most immediate positive effects?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How much upside growth potential do you see for Costco.com?


I think it's a huge opportunity. Costco has a well deserved reputation for carrying quality items. This in turn means many customers will actually order from costco.com without having seen the product on the floor (other retailers aren't so lucky ... all too often they become another online retailer's showroom). I think costco.com represents a net sales gain over and above the company brick and mortar sales and perfect for bulky, pricey or low-volume items.

Fabien Tiburce, CEO, Compliantia, Retail Audit & Task Management Software

I think it's admirable that Costco has one of the top 20 online businesses, however, I'm not convinced that "clubbing" has as much online overall potential as do other channels of trade. Shoppers online want variety, assortment, depth, and specialty, and that's not what club stores offer. That said, I can see where Costco can further build certain categories online for quantity purchasing.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

Stand still and you get passed. That rule has existed in retailing since it began. As others have continued to grow their online capabilities, Costco had not placed the same emphasis. Perhaps it was "good being the enemy of great syndrome," but based on the article it appears Costco had decided enough is enough and intends to place a stronger focus on online retailing. One question I would have is will they expand their online product section?

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Steve Montgomery, President, b2b Solutions, LLC

For the ardent club shopper, many categories and items they purchase are repetitive and certainly lend themselves to be purchased online along with scheduled reminders from Costco that according to their buying cycle, that it's time to buy again. Throwing a few deals into the mix for these online shoppers and understanding more about where else they purchase from this expanded relationship can be a very strong tool in building share of wallet with these shoppers.

As in all e-commerce websites, making the buying process intuitively simple and increasingly relevant to the consumer are two keys to customer satisfaction and repeat purchases.

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Mark Heckman, Principal, Mark Heckman Consulting

It's refreshing to hear from a company that has one of the best reputations in retail say they need to get better at something. It just reinforces the culture of keep moving forward and being the best. It's why people like Costco and Wegmans continue to be the leaders in making the shopping experience better, more fun, and for them more profitable....good for them!

Charlie Moro, President, CFS Consulting Group, LLC

It's very important to ramp up the online channel; you need to accommodate all methods of how customers want to transact with you.

What appears to be missing from the website is that sense of the treasure hunt that you get in-store. The site seems more focused on site traffic monitization with services being featured vs a treasure hunt of products.

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Robert DiPietro, SVP Energy Services and New Ventures, Homeserve

It's critically important to remain relevant in the long term, especially with the tech savvy demographics AND -- it's not just about the web site -- think omnichannel!

It's also a major area of opportunity to extend their value proposition to new customers, new products, and new locations.

Paul R. Schottmiller, Senior Vice President of Strategy, Retail and Consumer Goods, Merkle

In my opinion, Costco is the world's premier bricks-and-mortar retailer, in terms of relating to shoppers inside-the-store. They are well ahead of Walmart here, even though Walmart is obviously much larger. With the growing Convergence of Online, Mobil and Bricks-and-mortar (COMB) retailing, obviously Costco needs to push hard on integrating/leveraging its already successful online business.

Amazon will continue to eat anyone's lunch, who they choose too, and it is just possible that with their moves in logistics, that they have passed the point of catching their ascendance toward becoming the world's premier retailer, period. In fact, if Costco and Walmart don't make the successful transition to competition with Amazon, it would not be the first time in the world of retailing when trillions in deployed capital become an albatross hindering staying up with where the industry is going.

COMB retailing will increasingly dominate the retail stage, with skills in digitally mediating sales defining the GREAT winner. So far, all indications are that this will be Amazon -- unless others learn what Amazon already knows about SELLING. The logistic skills honed over the past 100 years, filling self-service (shopper, sell yourself) boxes, will be increasingly inadequate in the COMB world.

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Herb Sorensen, Ph.D., Scientific Advisor Kantar Retail; Adjunct Ehrenberg-Bass, Shopper Scientist LLC

The most frustrating part of the Costco.com site is that you can't get the same items you get at the store.

My wife and my kid's families are all are regular Costco shoppers. The only thing that stops them from shopping there more is that you have to go to the store to do it. If they could buy the same items online, they would. Online doesn't mean fewer sales for the store, it means more sales overall.

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Gene Detroyer, Professor, Independent

There are those that think a delayed response to market trends eliminates many of the costly mistakes the frontiersman make and pay for. This would be true in the IT business except for the speed of technology maturity and change. The statement shared in this article by Costco's CFO seems somewhat saturated with the frustration of dealing with the unknown. Corporations that place responsibility in the trust of individuals with only IT user familiarity are putting much at risk.

There are not that many people with the proper blend of IT savvy and market prowess to lead today's retail giants. What's worse is that there are very few development courses being offered to supply this need in our higher education institutions. This does not help the placement needs of retail's movers and giants. It is therefor necessary to recognize these leadership skills as mandatory and to find, buy and keep in place the services of those that posses them.


Every sustaining retailer either grows or it gropes. There is no choice between importance and impotence.

Having already achieved the lead dog position in club retailing, Costco wants to further capitalize on consumer trends and be successful doing that better than anyone else could do it. To accomplish that goal, Costco will first focus on having items shipped to its customers' doors that are too bulky to carry out of its stores.

Gene Hoffman, President/CEO, Corporate Strategies International

One of the toughest challenges for Costco online is to maintain the core benefit of BIG value -- simply because BIG value often equals BIG shipping costs. That can quickly turn setting up a regular monthly delivery of paper towels and toilet paper to your home into a little value if you have to pay shipping, or if Costco builds shipping into the price.

Costco does provide a value with their "delivered and assembled" all-inclusive pricing on large items like patio furniture, grills and interior furniture. Even heavy items like floor safes get delivered to the first floor of your house. That definitely maintains the BIG value of Costco.

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Ben Ball, Senior Vice President, Dechert-Hampe

Costco's array of online products and services extends well beyond their warehouse inventory. To the extent that they promote what they already have to their loyal customers and are able to enhance awareness of their offerings to the rest of the world, their revenues will multiply beyond expectations. Reading the comments this article generated I see the emphasis on products. But they offer travel, insurance, etc. With the reputation for quality and the positive experiences of their customers, plus word of mouth they are in a position to rule online shopping. It seems they recognize the opportunity and now wish to turn it into a reality. Go Costco!

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Joan Treistman, President, The Treistman Group LLC

Top 20 online merchant with only 50% of its members registered online is impressive. With its good name and by improving the website, Costco can not only bring in additional members to its online franchise, but also capture new members outside of their RTA.

There are several improvements that will provide positive effects. Costco is so far behind that it can take best learnings from other companies and leapfrog them in terms of technology, use of social media, and user experience.

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Carlos Arámbula, VP Hispanic Marketing, R&R Partners, MarcasUSA LLC

Omni-channel. Always on. That's what a growing share of consumers expect. And the majority of next wave-home owners. Therefore, in order to maintain relevance, Costco must mirror its offline experience online. Real-time, all location inventories: Buy online pick up in store. Nope not cheap or easy.

But as we like to say "Retail ain't for sissies."


Walmart also successfully collaborates with CPG companies on improving its online retail experience. Have a look for example at its Right@Home campaign created by SC Johnson.

I think it's a great campaign for creating awareness for the product portfolio, engaging shoppers, and creating traffic and cross-category sales for Walmart.



Definitely two sides to this coin. On the one hand, there's every reason to optimize online performance. If Costco is missing out on opportunities around SEO and global-friendly web sites, that's a pretty damning performance lapse. On the other hand, according to the US Department of Commerce, in 2011 more than 95% of retail sales were still in the brick and mortar channel.

In other words, shame on Costco for not optimizing its online performance, unless that was a necessary price for continuing to be a high performer in the physical world. If that was a necessary trade off, then it certainly was the right one.

Now, what Costco should be striving to do is optimize both channels. That should be quite achievable. Costco can have a sandboxed division with its own resources dedicated to winning online, and the company should be able to invest enough resources in that division that no "easy" problems like localization of pages, acquisition of appropriate domains, multivariate testing, or SEO optimization remain unaccounted for.

Tim Callan, CMO, SLI Systems

My advice to Costco (as both a warehouse and online Costco shopper for years) is to improve the info flow from the time I check out online until the item(s) arrive at my door.

It is still cumbersome compared to the smooth, immediate, and ongoing info I get from Amazon.


What makes Costco online different than other online sites is the Costco brand and the customer service. If I had a choice to buy from Costco or Walmart, it would be no contest. I would choose Costco even if I had to pay more.

Joe Nassour, Chief Technology Officer, RetailTactics

Given the movement of consumers towards using retail locations as showrooms before purchasing online, it is critical that Costco enhance their online presence. The majority of their products are purchased in-store, in large size and in volume, which tends to make those products relatively insulated from online competition. However, the high-margin hard goods which tend to be more researched are the categories that are vulnerable to stronger online competition.

The most important improvements that Costco can make would be to help consumers research and evaluate their products on the Costco site rather than on competitive or third-party sites. In this way, Costco can help reduce the number of consumers who will consider alternative retailers in the purchase process.

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Mark Price, Managing Partner, LiftPoint Consulting, Inc.

Costco has to perform online better to maintain its customer base on non consumables. Electronics and other "commodity" products can be had via the internet for similar pricing, but without sales tax and in most cases with free shipping and even extended warranties and/or free in-home setup. Costco charges $50 a year to be a member and that also becomes a part of the equation.

Costco has the ability to greatly expand its reach beyond its brick and mortar locations, but it must look at the value it offers and ask themselves "Do we have better pricing, do we ship as fast, is our customer service as responsive?" If they feel that it's enough to compete on the internet just by being Costco, then they should get off the internet and stick to bricks and mortar.

Ed Dennis, Sales, Dennis Enterprises

Costco is not only a retail giant, but has an amazingly loyal customer base. Its only weakness is that most Costco trips are planned, and not impulse events. The Costco customer knows that the trip will be an investment of time. The online factor will allow customers who are not local, or who do not have the time to place more frequent orders. As margins for Costco are so slim, it may not be cost effective to have customers place small orders. It will make membership more desirable, and from my understanding, membership makes up a significant amount of their profit.

Can they use the same principles as store shopping -- encouraging customers to purchase more than they intended, encouraging customers to stumble on unexpected items? They cannot offer the free samples, obviously.

They are experts in keeping costs low. Infrastructure, order processing and delivery are the chief costs for online shopping. If they can keep those costs down, this will be a winner for Costco.

Rick Grossman, Owner, na

Every large scale retailer and most small retailers will have a "W" by having an online strategy. Costco recognizes this fact, and they are wise to ramp up their efforts to make online sales a larger portion of their overall revenue stream.

Based on the December BIGinsight Media Behaviors & Influence Study, Costco's customers are already on the scene and waiting for an enhanced online presence from one of their favorite retailers. In category after category, the Costco customer base is more influenced to purchase online than the general public. For example, the Costco customer base indexes at Children's Toys (219), Electronics ((126), Sporting Goods (153), Linens / Bedding / Draperies (161), Health & Beauty Aids (161), Prescription Drugs (215), Furniture (139), Appliances (143).

No need for Costco's CFO to be driven crazy with envy that others are capturing these added dollars. By taking a look at their own customers, and what they are doing away from Costco stores, and then acting upon the clear insights that are available, Costco will come out a winner with this expanded strategy.

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Roger Saunders, Global Managing Director, Prosper Business Development

Given its market position, brand strength and the format of its stores, I think Costco could survive for a long time without being a market leader online. However, to not reinvigorate their online business would be to leave a huge opportunity on the table and definitely increase their vulnerability to Amazon. Simple improvements they could make include the site modernization that is apparently underway as well as increased promotion of the online channel to the captive audience that is visiting their stores.

I think part of the reason that Costco fell behind here is their extremely insular corporate culture. Most of their top executives, including the ones running the online business, joined the company before the advent of eCommerce. Walmart.com by contrast is based in the Bay Area and is run by external hires.

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Martin Mehalchin, Partner, Lenati, LLC

It is important for Costco to move ahead with its online business; investment is critical now as competitors ramp up their efforts and playing catch up is never a good position. Having the ability to order planned purchases would save a lot of time; delivery is likely to be perceived as added value for Costco shoppers with their higher incomes. Costco members are loyal, with their buying preferences tracked and understood, giving direction to where online shopping may be of interest and to whom. There should be good potential here!

Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

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