RetailAnalysis
27 March 2017
Costco adopts a new approach to ecommerce

As Costco announces a new delivery partnership with Shipt, we look at how the retailer is starting to ramp-up its ecommerce activities.

Potential to expand the service to 50 US markets

Costco will initially work with Shipt in the Florida market for home delivery, before potentially expanding the service to 50 markets across the US by the end of the year. Shipt operates slightly differently to a number of other delivery services such as Instacart and Lyft, charging members an annual fee of $99 for unlimited deliveries. The company aims to deliver orders to customers within an hour. It is currently working with a range of retailers in the US including HEB, Meijer and Publix.

Ecommerce sales improving as investments continue in the channel

Over the last two years Costco has been ramping up its investments in ecommerce. These have focused on enhancing the merchandise offer through introducing more exciting and value-added products and improving the availability of high velocity items. It has also sought to improve the customer experience through improved functionality including a shortened checkout process, better search, and better order tracking. Costco has also been focusing on optimising distribution and logistics through increasing the number of fulfilment locations, bringing it closer to the customer and reducing shipping costs. Its ecommerce sales increased by 12% in Q2, improving on the 8% growth recorded in Q1.

Builds on test with Google Express and Instacart

The initiative with Shipt is the latest ecommerce partnership for Costco as it continues to test different models. The retailer is also working with Google Express in five cities for same-day delivery, operating out of 15 of its stores. It is also working with the company on a three-day delivery service across the US. Costco has also partnered with Instacart across 26 cities, using 132 of its stores.

Playing catch-up, but moving quickly

This increased level of testing comes after relatively slow progress in the channel. Despite offering an extended range of products online for home delivery for several years, it has not offered the ability to shop for its in-store ranges. Previously the retailer has been concerned with the potential impact on store traffic. However, with an increasing number of retailers now offering ecommerce in the US, and its main competitior, Sam’s Club, building a leadership position in the channel, this now appears to be firmly on the agenda. With most of the focus on building a delivery service, there are no plans to offer in-store pickup in the short term.




Stewart Samuel, Program Director, IGD Canada
Based in Canada, Stewart heads up all of IGD's research and coverage on Costco globally. He is also responsible for shaping IGD's research program across North America. Contact Stewart at stewart.samuel@igd.com for further insight on the region.
@Stewart_IGD
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