- Costco beat expectations Thursday for its fourth quarter, including a near doubling of its e-commerce sales.
- Unlike its rivals Walmart and Kroger, Costco doesn’t offer pickup for the vast majority of online orders, and Chief Financial Officer Richard Galanti said the company didn’t have any plans to start in the near future.
- The company has relied on delivery options, which are driving consumers to sign up for Costco memberships, Galanti said.
- Analysts say Costco’s high membership-renewal rate and success with delivery are key to keeping customers coming back, though UBS said pickup options may be an inevitable part of Costco’s future.
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The pandemic has forced many retailers to step up their delivery and pickup game as more shoppers avoid going into stores during the COVID-19 pandemic.
Costco, meanwhile, is smashing expectations despite having a limited delivery game and barely offering any pickup service.
The membership-based retailer blew past expectations for its fourth quarter Thursday, thanks in part to e-commerce sales that nearly doubled. Costco’s online business now stands at 8% of its overall revenue, up from 5% one year ago, Chief Financial Officer Richard Galanti told analysts Thursday.
But Galanti made something else clear: Don’t count on any new e-commerce options, especially for picking up Costco orders at a store, anytime soon.
“We don’t have our head in the sand on it,” Galanti told analysts of pickup orders. “We look at it. We have people here that study it. And maybe we’ll surprise you one day.”
“But at this juncture, we’re not prepared to do that,” he said. Costco offers pickup ordering for a limited selection of high-value items, such as jewelry, through lockers at some of its stores.
That choice marks a contrast with other retailers, many of which have been experimenting with pickup options, including buying online and picking up in store and curbside delivery for years. Many retailers, such as Walmart and Target, have had to ramp up those existing programs as COVID-19 continues to keep many shoppers away from physical stores.
Galanti acknowledged that Costco “may occasionally be stubborn” on implementing a new strategy, including e-commerce. But that stubbornness hasn’t phased Costco shoppers, Cowen analyst Oliver Chen wrote in a note Friday.
Costco’s membership-renewal rate — a key measure of whether shoppers find shopping at Costco worthwhile — stood at 91% for the US and Canada at the end of the fourth quarter. Worldwide, the retailer’s renewal rate was 88.4%.
Those numbers represent “all-time highs as shoppers remain highly satisfied” with Costco during the COVID-19 pandemic, Chen wrote.
New customers, meanwhile, are signing up as members, thanks in part to Costco’s delivery options, Galanti said Thursday. Costco offers delivery on grocery items, including both same-day service for fresh foods through Instacart and two-day shipping on dry goods.
“Some of our new members signed up simply for same-day or two-day dry,” he told analysts.
That growth comes even though Costco has not matched major investments, such as Kroger’s partnership with the British grocer Ocado, under which the companies are constructing several automated warehouses dedicated to filling online orders.
While Costco hasn’t made such large moves, UBS analyst Michael Lasser wrote Thursday that the retailer was likely to take a slower approach to trialing new e-commerce options, including pickup.
“While Costco isn’t likely to place as much emphasis on digital as other mass merchants like Walmart and Target, we do expect it to steadily roll out additional features to appeal to its membership base in a post-COVID world,” Lasser wrote, adding that his team believed buying online and picking up in store and “curbside are two potential opportunities it could pursue down the road, particularly given this is an area of focus for BJ’s and Sam’s Club.”
In the meantime, though, growing its membership base and sales is likely to give Costco an edge over rivals.
“At a time when other retailers are seeing their sales moderate, Costco’s” same-store sales “remain at elevated levels,” Lasser wrote.