As recently as the middle of 2016, Costco (COST -0.06%) considered the internet a minor sideline. The membership-based warehouse club had a website, but it sold very few things as the company sought to protect the value of its in-store experience.
CFO Richard Galanti addressed the chain's web deficiencies in the company's Q2 2016 earnings call, making it clear that he knew that future growth would be digitally driven. But he also stated that Costco was not rushing to change its online operations.
Since then, Costco has been quietly and steadily building its website. Galanti has acknowledged that in earnings calls, generally focusing on efforts to improve user experience, and now, as the company starts FY 2018, what was once a weakness has become a strength.
Costco still puts its stores first. Image source: Costco.
What did Costco do?
Costco has been steadily investing in its website while not wavering from the original idea of not taking focus off its stores. The warehouse club built out a digital option for members who want it.
And the strategy has worked. Costco posted 2017 e-commerce sales of $4.6 billion, a tiny percentage of its full-year sales total of $126.7 billion, but up 15% from the previous year. E-commerce sales in the fourth quarter were up 21% year-over-year on a comparable basis. In the five-week period including September, which mostly falls in the chain's first quarter of 2018, digital comps were up 30%.
To make that happen, Galanti explained during the Q4 earnings call, the company focused on making its website work better. That included improving its search, streamlining the checkout process, making it easier to track orders, and automating much of the returns process. The warehouse club also added higher-end and better-known brands to its digital offering including Samsung electronics and General Electric appliances.
The company has also begun making its members more aware of its website. That has included signs in its warehouses, targeted emails, as well as online-only special offers.
"We feel that all these efforts, which are ongoing, have resulted in increased traffic and sales, both online and in-store during the past couple of quarters in particular," said Galanti. " Looking forward, we'll continue to expand these types of activities to drive our businesses."
Go your own way
Instead of trying to compete with pure-digital players, Costco has smartly built its e-commerce offerings to complement its stores. Its website enhances the value of a membership without taking away from the chain's warehouses, which are the driving force behind why most people join.
Costco notes that products sold online may have different prices than products sold in store. That's because of shipping and handling fees, the company says, and it will let you know when a product you see online may be available for less in a Costco store.
Costco's efforts have made it so the company does not lose sales -- specifically on bigger-ticket items -- if a member does not have time to visit its store. It has made its website an easy-to-use asset to its membership base. That should help it retain customers who might not have visited its stores very often.
It's a digital strategy built around how Costco does business and serving its unique customer base. That's a much smarter strategy than the "everything to everyone" approach that has failed for so many retailers.
