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$COST thread for the weekend... The biggest misunderstanding about $COST today is that its reluctance to embrace e-commerce (curbside pickup, BOPIS etc) makes $COST fall behind. Rather, their strategy on e-commerce shows a deep understanding of its core value proposition.
1) $COST's core strategy is to "provide members with a broad range of high-quality merchandise at prices that are consistently lower than elsewhere". As most writeups discuss, every aspect of $COST's business is designed to achieving lower prices for consumers.
2) Driving in-store traffic is an important part of lowering prices. When members shop in-store, they buy more random stuff and inventory turns faster, allowing for lower prices for everyone.
3) BOPIS and curbside pickup are antithetical to the objective of providing low prices. They are labor-intensive activities which also reduce the basket-size. This increases $COST's cost structure and lowers turnover leading to higher prices for everyone.
4) Is this less convenient for the customer? Sure, but $COST was never meant to be convenient. Its stores are specifically located in inconvenient places to save on real estate costs to lower prices. If you want to buy two tomatoes, go to your local supermarket.
5) Sam's and BJ's knows that $COST's has a massive advantage in labor and real estate productivity, and cannot possibly compete based on prices. This is why they aim to differentiate by offering more convenience. Long-term though, this only widens the cost gap for $COST.
6) What $COST is doing in e-commerce is leveraging their massive user base and consumer trust to target areas that are currently not addressable by in-store traffic such as bulky items, patio, travel, and fashion. Most non-perishable foods are also available for delivery.
7) A large portion of $COST's traffic is driven by fresh groceries, which is why this is the only product not directly offered for delivery. To the extent that someone wants to purchase, say, a blender online, this is highly unlikely to cannibalize an existing in-store purchase.
8) Similarly, very few people purchase a patio table on a $COST run, making the online order purely incremental to $COST. By offering white glove service, this targets a niche that is largely not targeted by $AMZN while freeing up space in-store for faster-turning items.
