As a business, Costco moves very slowly. This isn't a chain that jumps on the latest trends or even one that feels it has to do something just because its competitors do it.
The warehouse club clearly watches what rivals like Walmart (WMT) -) and Amazon (AMZN) -) are doing, but that's to gain information, not necessarily because it's going to copy its competitors. Costco (COST) -) does not have to offer everything as long as it lives up to its promise of offering low prices.
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Unlike traditional retailers, Costco isn't being judged for not offering millions of items with free, next-day shipping. The chain was actually very slow to offer any sort of e-commerce and has been very selective about its efforts in the space. That's because while the warehouse club's members would want all the digital bells and whistles, they would not want to pay for them with higher prices.
Costco has been very careful and it has moved forward by partnering with Instacart to offer same-day delivery for members of that service and offering some e-commerce scaled in a way to make it effective (and affordable) for the company.
Now, the membership-based chain is quietly making a big move that suggests it's going to grow its digital business.
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Costco's Huge New Store Tells a Story
Costco adds about 25 new warehouses around the world each year and sometimes moves existing stores (usually in order to make them bigger). The chain plans to build its biggest-ever store in Fresno, Calif.
The location would be 241,000 square feet and include 32 gas pumps, an automated car wash, and a lot of space for shipping and storage on its 22.5-acre lot. And while this would become Costco's largest location, a big piece of it would not be open to members.
"The club’s southwest portion would house a 47,000-square-foot, relocated market delivery operation (MDO) for receiving, storing and loading big and bulky items for Costco’s home delivery service. At MDO facilities, large goods are dropped off, sorted and loaded for daily deliveries to Costco members," Grocery Business reported.
That's a lot of space devoted to a business that has not really been a priority for the chain and its inclusion suggests a pivot to a new model. Costco has generally handled its large-items delivery business from separate locations. Doing it from its stores would follow what Walmart and Target (TGT) -) do at many of their locations.
Costco Digital Sales Have Been Shrinking
While e-commerce may not be a major focus for the chain, Costco likely wants to reverse a negative trend. In the last quarter, digital sales actually shrunk which CFO Richard Galanti spoke about during the chain's third-quarter earnings call.
"You saw in the release that e-commerce was a minus 10% sales decline on a comp basis...more to the same story in terms of the sales, as I discussed on our second quarter call and in our monthly sales recordings." he said.
Some of that decline matched sales trends in the company's warehouses.
"In Q3, big-ticket discretionary departments, notably majors, home furnishings, small electrics, jewelry and hardware, were down about 20% in e-com and made up 55% of e-com sales. These same departments were down about 17% in warehouse, but they only make up 8% in warehouse sales," he explained.
The chain has also hired multiple new executives from outside the company to bolster its digital business.
"And we've really, over the last six to nine months, began a two-year road map to improve and replatform our primary e-commerce website and the same goes for our mobile apps and mobile site," he said. "Working, of course, again, with the data analytics people, the architect people, as well as the business users, we're currently building and dramatically increasing the number of engineering capabilities that we have."
