Costco Doesn\’t Need Curbside Pickup

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Over the past decade, omnichannel has become one of the most common buzzwords in retail. Retailers of every size and shape have implemented strategies to make their brick-and-mortar and e-commerce operations work together. Common omnichannel fulfillment capabilities include buy online, pickup in store (BOPIS); buy online, ship to store (similar to BOPIS, but the items are shipped to a store for pickup rather than being in the store\’s inventory at the time of purchase); and buy online, ship from store.

The Covid-19 pandemic has driven retailers to double down on omnichannel. In particular, many retailers have rolled out or rapidly expanded curbside pickup, capitalizing on consumers\’ desire for limited-contact shopping options.

[callout]The first reason to be skeptical of arguments that Costco \”\”needs\”\” curbside pickup is that the warehouse club giant is thriving without it.[/callout]

Costco has been a notable exception. Not only does the wholesale club giant not offer curbside pickup, it doesn\’t even support in-store pickup, aside from a limited selection of high-value items (mainly electronics and jewelry). Many retail pundits believe that curbside pickup is table stakes in the 2020 retail environment and that Costco is shooting itself in the foot by sticking to its traditional business model. However, Costco is a uniquely successful retailer and has no need to add features like curbside pickup to remain successful.

Wholesale Clubs Go Omnichannel (but not Costco)

Walmart began testing curbside grocery pickup way back in 2013 and offered the service at more than 1,000 stores by the end of 2017. Thus, it\’s not surprising that Walmart-owned Sam\’s Club quickly started a curbside pickup test as the pandemic changed consumer habits. By June, the chain offered curbside pickup at all of its locations. Sam\’s Club\’s curbside pickup service includes refrigerated and frozen items and is a free perk for Plus-level members. (The company has temporarily made the service available for holders of the basic Club membership, too.)

Regional chain BJ\’s Wholesale Club followed in Walmart’s footsteps soon thereafter. It began testing curbside pickup in the first quarter of 2020 and rolled it out nationally in August. In late October, BJ\’s announced that it had added fresh and frozen items to the selection available to buy online and pick up in its clubs (or curbside).

Meanwhile, Costco has stuck to its own strategy. It has shown no interest in introducing curbside pickup or rolling out a broader buy online, pickup in store program. With respect to the latter, longtime Costco CFO Richard Galanti said on a recent earnings call, \”We continue to look at it and scratch our heads a little bit. But at this juncture we don’t have any current plan to do so.\”

Is Costco Missing an Opportunity?

Executives at Sam\’s Club and BJ\’s have indicated that they\’re pleased with curbside pickup. Some Costco members have said that they might buy from Costco more frequently if curbside pickup were available. Indeed, with consumers gravitating towards no-contact or limited-contact shopping options, curbside pickup seems like a natural move to keep up with the times.

Furthermore, while the pandemic may end in 2021 thanks to the arrival of vaccines, interest in curbside pickup options will likely continue. After all, it doesn\’t take very long for consumers to form new habits. People who have been using curbside pickup at other retailers for much of 2020 and 2021 may discover that it\’s more convenient than shopping in person, leading them to continue seeking out curbside pickup options in the future.

That\’s why a number of analysts believe that Costco is asking for trouble by dragging its feet on curbside pickup. As Chris Walton put it in Forbes, \”At this point, rejecting curbside pickup is like rejecting gravity. It\’s the retail equivalent of being a flat earther. Everyone is doing it, consumers want it (especially amid the pandemic), but, most importantly, rejecting it will likely put Costco at a strategic disadvantage in the long-term.\”

However, curbside pickup (especially for temperature-controlled items) is difficult to execute in busy, high-volume stores. It also adds costs. Those are both significant issues for Costco, which prides itself in its sales productivity and low prices. Moreover, there\’s no sign that curbside pickup is giving Sam\’s Club and BJ\’s a competitive advantage over Costco.

The Numbers Paint a Clear Picture

The first reason to be skeptical of arguments that Costco \”needs\” curbside pickup is that the warehouse club giant is thriving without it (even during the pandemic, when it should be most appealing to customers).

Sam\’s Club posted a 7.9 percent domestic comparable sales increase in the third quarter (which ran from August through October). BJ\’s did better, despite rolling out curbside pickup nationally a few weeks into the quarter. Comp sales rose 14.1 percent for the period. Meanwhile, Costco posted domestic comp sales growth of 12.5 percent in August, 14.5 percent in September, and 13.6 percent in October. That puts its comp performance for the three-month period about half a point behind BJ\’s but more than 5 points ahead of Sam\’s Club.

Costco offers home shipping for many shelf-stable items and same-day delivery through Instacart for grocery offerings, including fresh and frozen foods. It appears that between those e-commerce channels and its traditional in-store business, Costco is capturing demand about as efficiently as possible.

Costco is Not Like its Rivals

Given how quickly Sam\’s Club and BJ\’s Wholesale Club rolled out curbside pickup this year, Costco\’s failure to follow suit might appear to imply some kind of organizational failure. However, Costco is very different from both of its rivals in one big way: sales productivity.

Costco ended its 2020 fiscal year a few months ago with 116.1 million square-feet of operating floor space across its 795 locations. Meanwhile, the company generated $163.2 billion of sales in fiscal 2020, putting sales per-square-foot in excess of $1,400. For the U.S. specifically, sales per-square-foot came to nearly $1,500 last year. This makes Costco one of the most productive retailers in the country.

By contrast, Sam\’s Club generated $58.8 billion of sales in the U.S. last year and ended the year with just over 80 million square-feet of space. This would put its sales per-square-foot at around $733. Even that was slightly better than BJ\’s Wholesale Club\’s sales per-square-foot. Moreover, Sam\’s Club and BJ\’s operate some smaller-format clubs (unlike Costco), which tends to boost sales productivity.

In short, Costco typically generates about twice the sales per-square-foot of its would-be rivals. It\’s not surprising that BJ\’s and Sam\’s Club are willing to take on the additional complexity of in-store pickup and curbside pickup to juice sales: they need it. It\’s also not surprising that they can free up the floor space needed to store shelf-stable, refrigerated, and frozen items for pickup orders. Due to its higher sales productivity, Costco might not be able to set aside space to stage pickup orders without hurting in-store sales.

You Don\’t Always Have to Give Customers What They Think They Want

A common thread seems to run through many of the commentaries predicting dire consequences if Costco doesn\’t embrace curbside pickup. They are based on the premise that retailers need to adapt to customers\’ shopping habits, delivering the convenience of a wide range of omnichannel offerings.

Retailers that sell undifferentiated products at the same price as competitors (let alone higher prices) absolutely do need to give customers what they want in terms of convenience. Otherwise, they\’ll defect to a rival that offers a better or more convenient experience.

However, customers shop Costco for its unbeatably low prices on high-quality goods. Customers will spend 10 minutes waiting on line at Costco\’s gas station rather than filling up at a nearby station that always has empty pumps, not because it\’s convenient, but because it\’s cheap. They\’re willing to put up with massive package sizes (e.g., rice starting at 15-20 lbs.) not because that\’s how they prefer to buy, but because it\’s a great deal. And customers might prefer to have goods presented nicely on shelves, but Costco puts merchandise straight on the sales floor on pallets, and that doesn\’t seem to faze anyone.

If convenience determined whether or not people shopped at Costco, the chain wouldn\’t have any customers. Instead, it has industry-leading customer satisfaction and loyalty, with membership renewal rates of about 91 percent in the U.S. and Canada (its mature markets). Costco has earned its members\’ trust by steadily driving prices down through its massive buying power, offering various perks to members, and maintaining customer-friendly polices (e.g., for returns).

Rolling out curbside pickup would drive up costs, potentially forcing Costco to raise prices to compensate. That would rob it of the one competitive advantage that has driven its success for decades. Curbside pickup might seem like a must-have for any serious retailer today, but low prices lured more shoppers than ever before into Costco\’s warehouses during 2020. There\’s no reason to expect that to change anytime soon.

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