Costco courts millennials with online, delivery

But physical stores still rule

Seattle Times/TNS

Costco operates e-commerce sites in six markets, and CEO Craig Jelinek said the company plans to expand in the coming two to three years.
Seattle Times/TNS Costco operates e-commerce sites in six markets, and CEO Craig Jelinek said the company plans to expand in the coming two to three years.

SEATTLE — By most measures, 35-year-old Costco Wholesale is thriving.

Its sales and profits are surging. Traffic to its stores, an important indicator of the health of the business, grew 5.9 percent in this past quarter, the fastest clip in at least a decade.

Costco members — whose annual fees make the company profitable — remain fiercely loyal, renewing at a rate of 87 percent even after fees were raised.

The Issaquah, Wash.-based company remains on pace to open 20 to 25 new stores a year, and is establishing toeholds in new international markets — including its first store in China, now under construction in Shanghai and scheduled to open in April 2019.

Meanwhile, Sam’s Club — Wal-Mart’s wholesale club, once viewed as Costco’s principal rival — announced last month it’s closing 63 stores.

But how will the world’s second-largest retailer adapt to changing shopping habits and appeal to a younger generation, and what is the company doing to contend with online sellers, such as Amazon, now viewed by some as Costco’s chief competition?

CEO Craig Jelinek, at the company’s annual shareholders’ meeting in Bellevue, Wash., this week, addressed the question head on.

Reports that millennials are not joining Costco are “not accurate,” Jelinek said, noting that the generation represents more than 40 percent of its new-member signups. (Company representatives declined to say how many of its current 90.3 million cardholders are in the millennial demographic.)

But they have yet to become Costco’s best customers.

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“They don’t spend the money like the boomers do,” Jelinek said. “But they are signing up, and we’re hopeful that as boy meets girl, buys house, that will continue to go through their life cycle.”

The company is making moves to better cater to shoppers whose expectations about retail were formed in the time of Amazon. But in doing so, Costco wants to preserve the “treasure hunt” aspect of its main cash-and-carry business that has been fundamental to its success.

“We want to sell stuff online, but we also want to bring people into our Costcos,” Jelinek said. “When people say, ‘I hate you guys, I came in to buy four things and I spent $400,’ that’s what we like.”

Costco is using its stores to drive online purchasing. Showcase areas in the stores let shoppers see and touch the online wares. They can purchase them on the spot for later home delivery from salespeople outfitted with iPads.

Costco operates e-commerce sites in six markets, and Jelinek said the company plans to expand in the coming two to three years to Australia, Japan and China.

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