With a loyal customer base and an virtual empire of successful warehouse club locations, Costco is not sure that it needs to join the fray of retailers competing for online customers. The retailer prides itself on cycling through different products, helping meet customers’ changing needs and creating a “treasure-hunt” atmosphere that keeps customers coming back for more. Customers may arrive with a list of needed items in mind, but they also discover new, unexpected items as they weave through the aisles. Costco also benefits from a general lack of online competitors: Amazon.com Inc. has struggled to offer bulk items to its customers at a competitive price, and the new online player Boxed.com is still too new to be considered a real threat.

Does that mean that wholesale chains are somewhat insulated from the other market pressures being felt by most physical retailers? Costco believes so, at least for now. Its strong in-store sales support this belief, even as many other brick-and-mortar brands continue to struggle.

Still, Costco has made some concessions to online sales in recent years. Its website offers only some items for purchase, ensuring customers still shop in store for the best selection. Smaller items such as jewelry and clothing are available for purchase online, and some limited bulk items are also made available for purchase—often at a higher cost, to make up for the more expensive shipping they require. Non-members pay a higher price to shop online compared with non-members, which Costco hopes will drive new customers to purchase an annual membership and, eventually, come in to a store to shop in person.

In the rapidly, constantly changing retail environment, wholesale chains currently seem in agreement about working to promote in-store sales instead of investing in online sales. Both BJ’s Club Inc. and Sam’s Club also currently focus on driving customers to stores. The shipping costs associated with the products available for purchase are the largest barrier to profitability, and not one of the three big players have figured out how to overcome this hurdle for their online customers. For Costco though, the in-store experience enhances its brand in a way that an online experience could not match. For now, it will leave the online sales to the competition and instead invite customers to come hunt though the aisles.

Discussion Question:

  1. Should Costco expand its online presence? Why or why not?

Source: Sarah Nassauer and Laura Stevens, The Wall Street Journal, April 5, 2017