Costco has always been an in-store shopping experience.
The warehouse club built its business around the idea of its stores actually being no-frills warehouses. Merchandise sits on pallets or gets stacked on non-descript shelves.
Costco (COST) does not spend money on displays or on making its stores super easy to shop. It's partly a gimmick, but mostly an effort to keep expenses low. Instead of focusing on merchandising, the chain puts all of its efforts into cutting costs to keep prices down.
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Those money-saving efforts have included the warehouse club being well behind its rivals when it comes to e-commerce. That's not an accident, it's Costco realizing that most of the value of membership comes from coming into its stores and seeing what new items are being offered alongside the favorites on your shopping list.
It's a treasure hunt model that drives people to the company's warehouse club locations. Costco does, of course, now offer a website, but its online inventory has been separate from what it sells in stores.
The chain has been slowly investing in technology and its digital offerings. That has included giving customers access to same-day delivery via Instacart while also building out its website offerings.
Now, the chain is adding a new online feature that will allow members a very different digital experience that will both drive people to its stores and allow them to buy more from home.
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Costco adding real-time inventory
Former Costco CFO Richard Galanti shared a surprise change in what the warehouse club's e-commerce site will offer during the company's second-quarter earnings call.
"One of the things we're — we should be doing shortly is having warehouse inventory online. So when you go online to — now I say that, a couple of people in the room are smiling and say, it may be a few months or more than a few months, but it will be soon," he said.
Galanti, who retired as CFO shortly after the earnings call, explained why that matters. He shared that showing the inventory online might drive members into stores.
"But at the end of the day, if you look at something to buy online and we have it in the location or two in the zip code where you typically shop — in the location you would shop physically, we'll let you know you can buy there," he added.
Members can order those items online, but there is one key reason they may not.
"In many cases, it will be cheaper if you go pick it up yourself because the online costs might be higher — is typically higher, particularly on the nonfood items. So I think that's something that will help that as well," Galanti said.
Costco drives online sales
While its website has never been a priority, Costco has been investing in its digital offerings. That has included selling some items it does not offer in its warehouse locations.
"In terms of e-commerce, e-commerce sales in Q2 ex FX increased 18.2%. E-com showed strength in several areas, led by sales of gold and very recently, silver. As well, appliances were very, very strong as were gift cards and e-tickets," the CFO shared.
Some of the chain's increased online sales have been driven by it improving its messaging.
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"In terms of e-commerce sales over the past few months, we believe we've done a much better job explaining to our members the significant value propositions we offer compared to traditional competitors in several big-ticket categories. Under the 'Why Buy at Costco' banner and the 'Price You See is The Price You Pay' banner, we share with our members what's included in the price of appliances, tires, televisions, computers, and mattresses," he added.
