Costco has a reputation for putting prices over everything else.
That's well-earned, but it's not completely true. The warehouse club puts a lot of focus on keeping prices down. It works with all of its vendors to take cost out of every item it sells and legendarily keeps its item count down in order to be able to place the largest orders possible.
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Doing that gives the company incredible leverage to push its partners to examine every aspect of their product. The chain fights for every penny in cost reduction and passes that on to its members.
Costco (COST) does not solely focus on price. It also thinks about overall value for members. That's evident in areas like Costco Travel and Costco Auto where the company not only offers low prices, but also convenience and peace of mind.
The retail chain treats its members as part of an extended family. It makes choices based on delivering the best mix of price, value, and convenience.
Costco may be no-frills, but it offers things like same-day delivery through its partnership with Instacart. That's a situation where the chain competes with Walmart and Target without having to invest in its own infrastructure.
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Costco invested in a new service
When needed, however, Costco does invest in infrastructure. During the Covid pandemic, for example, the company literally leased ships in order to take control of parts of its supply chain and lock in its costs.
That was a temporary move that the retailer dropped once the shipping market stabilized. Costco, however, made a more permanent change in 2020 when it purchased Innovel Solutions, "a leading provider of third-party end-to-end logistics solutions with nationwide capabilities."
The company, which was once a subsidiary of Sears, gave Costco the ability to serve its members in a new way.
"Innovel has for decades provided Sears and, more recently, third parties with 'final mile' delivery, complete installation, and white glove capabilities for 'big and bulky' products across the United States and Puerto Rico. Innovel’s network offers coverage to nearly 90% of the United States and Puerto Rico. Products served through Innovel include major appliances, furniture, mattresses, televisions, grills, patio, fitness equipment, and wine cellars," Costco shared in a press release.
Costo makes a bad process better
Purchasing Innovel has given Costco control over its delivery of big and bulky items. It also gives it cost certainty.
CEO Ron Vachris was asked about the warehouse club's competitors stepping up promotions and discounts in the appliance space during its third-quarter earnings call.
"You know, there'll be ebbs and flows with the competition, but I'm very confident that we are always in the right position, and we're staying ahead of that to keep the value there for our members. So, those things are cyclical, but we're going to be of value every day," he said.
CFO Gary Millerchip, however, pointed to the company's shipping and delivery arm as an edge in the appliance space.
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"And I think maybe just one thing to mention on that, Ron, too, you mentioned it earlier, but on the appliances, obviously, making sure we're always very competitive on price. But I do think the acquisition of Innovel, Costco Logistics now, and the value that we offer members there through both including the delivery and the installation and the removal of the old appliances is proving to be a real differentiator for us on the member experience as well," he said.
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Offering removal and installation gives Costco an edge over its rivals that sell those services, but often on a non-integrated basis at significant extra cost. By owning its own delivery and installation company, the warehouse club can deliver not just a low price, but also a best-in-class experience.
