Costco improving online experience, but mostly wants people in stores
- Summary:
- The US’ second largest retailer saw a small rise in revenues this quarter, but it is interestingly taking quite a laissez faire attitude do multi-channel.
Releasing its first quarter results this week, Costco saw its profits increase from $480 million in the same quarter last year, to $545 million this year. Revenues rose 3.2% to $28.1 billion. At the end of the first quarter its membership stood at 17.7 million households, an increase of 348,000 since the previous quarter.
However, it also noted that despite a increase in unit sales, because of the introduction in lower prices, the retailer only saw a 1% increase in same-store sales over the period.
CFO Galanti said that Costco online is now in the US, Canada, the UK, Mexico, Korea and Taiwan - and that for the first quarter sales were up 8%. Although Galanti added that the figures were “pretty choppy”, given that they were in the low to mid teens for Black Friday and Cyber Monday, but for the first and last weeks of the quarter we in the mid singles.
Although Galanti later made some more tepid comments about the threat from e-retailers and internet giants, such as Amazon, he took the time to note the improvements being made to the Costco online experience. He said:
Lastly, as it relates to our online business, we are improving our offerings and enhancing our member experience. We are improving the experience and functionality of our site, we are improving our search that we have and are continuing to do that. We have shortened the checkout process from many clicks to two and so a big improvement recognizing this is new for us.
We are simplifying and automating our returns process, a much better experience particularly on big ticket items and we have seen great improvement in that in the last several weeks and we are improving our members' ability to track their orders. Again, that's something that we were terribly good at historically.
And thirdly, we are improving our distribution logistics. We have increased the number of depots from where we fill online orders, so closer and faster and less expensive delivery. And again, look for more improved and quicker distribution comments from us in early calendar 2017.
Stores > Online
Earlier this week we saw how online giant Amazon has created a pilot store for shoppers that includes no check-out and no queue. It is using machine learning and sensor technology to allow customers to walk into a store, shop and then leave without having to speak to anyone. The bill is automatically listed and sent to your mobile phone.
Other major retailers in the US, such as Walmart, are also investing heavily in their digital futures. Walmart has made a concerted effort to invest in its multi-channel programme, most notably its click and collect plan, and has said that its customers expect to be able to touch Walmart from all angles - both online and offline. Convenience is key.
However, Costco CFO Galanti made it clear to investors that whilst the online experience is important for the retailer, it isn’t going to be investing in everything and anything like some others. It’s main focus is going to continue to be on getting people in-store.Costco also announced that for the next three quarters it would be opening 31 new stores, which equates to about a 4.25% square footage growth. It grew a similar amount in size last year (4.5%).
Answering an analyst question on the difference between online and mobile sales, Galanti said:
Well first, we're fixing some of the basics and improving some of the basics and I'm pretty excited about some of those things. You mentioned a number of mobile versus non-mobile e-commerce sales. Our numbers are lower than that mobile, but they're improving quickly. Again, we’ve recognized those things that we can and can't do. We think that we could and should do a lot more online, but we also as you pointed out want to get people into the warehouses.
We think that some of the things that we do in store will keep them coming. So far it's not been an issue.
Commenting on click and collect, a big initiative for Walmart, Galanti said that it wasn’t a priority for Costco at this moment in time. He said:
In terms of click and pick up, we've looked at it and we are not prepared to do that at this point. When we see it in other places not just the other warehouse club, you need space for it or you need a lot less volume in the location for it neither of which we have and we're not getting a lot of demands for it.
We do that at business centers. You can log on and get it delivered and so that's more for the business member not the individual. And we recognize that we're not the retailer, they're going to sell you a smaller pack size or something and even a little bit higher margin. That's not what we do. Now time will tell over time, there's a lot of things that are going on out there.
And commenting on the Amazon grab-and-go store, he added:
We've all seen the video from earlier this week about you just walk in.There's a lot of other brick and mortars that my guess would be far more impacted than us on that, but we'll have to wait and see.”
Well, look in terms of scan and go honestly we did a version of scan go literally 20 years ago a customer I remember walk in get an RF gun, radio frequency device walk around scan their own items come up to the front hand that thing to the cashier and the scanner and they print out a receipt. Needless to say, there's a lot more efficient things today. We continue to look at scan and go type things, we are not testing it currently but we are looking at it.
As it relates you asked question about Amazon and Amazon is also the word for everything out there that's delivered or dot com and everything else it's certainly they’re doing a lot of things. We want to make sure we understand what all of these people are doing.
We recognize convenience is a value but there’s also some things that we can and can't do. So I think that we're looking at these things offensively not defensively at this point.
Galanti added that Costco will continue to provide more convenience, but added that “we still want you in the door”. He also had one more comment on Amazon:
And again to Amazon and others credit, they’re trying a lot of things. Some will work and some won't and we're pretty good at understanding what works and figure out how to augment and to do what we know how to do and what we want to do.
My take
A more measured approach for Costco compared to others. But then again, Costco isn’t your typical retailer - it focuses on bulk and larger items, which is typically planned for in greater detail from the consumer’s perspective because it is already getting a cheaper deal. Will it get chipped away at by online competitors? Probably. Could it do more online? Probably. However, it likely has a bit more time to bide than some others. That being said it shouldn’t be complacent. In particular it should be looking how it could incorporate its physical footprint into a digital offering.