Photos: Innovel Solutions
Costco acquisition brings white glove delivery and white good service in-house
Costco is planning to enhance its ability to deliver the appliances, furniture and other bulky products it sells with a big last-mile logistics and installation acquisition.
The warehouse club chain announced that it has acquired the third-party delivery and installation company, Innovel Solutions, for $1 billion cash. Costco plans to leverage the Service Live platform, a solution for complex installations previously owned by Transform Holdco, Innovel’s former parent and the holding company for Sears and Kmart. Costco will maintain a deal with Transform Holdco to provide warehousing, delivery and installation services for Sears and Kmart, as well. Transform Holdco plans to use the $1 billion cash influx to pay off all of the company’s non-real estate debt.
The intent behind the acquisition is to boost e-commerce sales, Costco CEO Craig Jelinek is quoted by the Seattle Times. Innovel has 11 distribution centers and more than 100 final delivery centers nationwide.
Innovel, which was known as Sears Logistics until 2014, signed Costco as a customer two years after the name change, according to the New York Post. The removal of the Sears name was done to place distance between the Costco delivery experience and Sears’ bad reputation, according to an employee of the company.
Fast, efficient home delivery and home installation have become perennial topics of discussion in the retail world with the broad customer adoption of e-commerce and the ascendancy of Amazon.com.
Most recently, the coronavirus outbreak has led to an increased interest in e-commerce in spaces with thus far limited consumer adoption, such as grocery.
Short term, there have been indications that coronavirus-related trends have also been affecting sales of some appliances.
In the U.K., there has been a significant and seasonally abnormal uptick in the sale of freezers, according to a report by BBC News. Online retailer AO.com reported a 200 percent increase in freezer sales and the John Lewis department store saw a similar uplift. An AO.com representative attributed the increase to customers needing places to keep stockpiled food.
- Costco Acquires Innovel Solutions from Transformco for $1 Billion – Costco/Transform Holdco/PRNewswire
- Costco aims to lift online sales with $1 billion purchase of logistics firms – The Seattle Times
- Sears finds a new way to rake in cash – New York Post
- Freezer sales heat up amid coronavirus stockpiling – BBC
Discussion Questions
DISCUSSION QUESTIONS: Did it make sense for Costco to acquire Innovel Solutions? In what ways do you expect Costco to leverage the logistics provider, now that it is the owner?
Poll
BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
Kathleen Fischer
Director of Marketing, Körber
The delivery and installation of large or complex products can have a huge impact on customer satisfaction. Owning the delivery and installation services will provide Costco greater control of the quality of service, which gives them more control of the entire buyer’s journey.
This move is extremely smart and extremely timely. Costco is already the premiere top-of-mind, go-to value retailer. Their shopping carts can’t get any bigger. Extending the Costco equation to delivery and installation is a no-brainer. Customers will no longer need their own pick-up truck or van to be able to take advantage of Costco’s great value equation. And Costco can broaden the range of products they offer. This is a win-win. Best Buy, and other appliance sellers, might be at risk of some market share loss depending on how aggressive Costco gets. And Costco will need to train staff accordingly. Selling appliances is a little trickier than selling bulk toilet paper. At the end of the day, this gives Costco a lot more muscle to sell more products to more customers.
Costco needs to compete more successfully against Lowe’s, Home Depot and Best Buy in categories like white goods. Meanwhile, Innovel is an “orphan” in search of a new parent given the slow death of the Sears retail business. This acquisition makes total sense for Costco and will enable it to grow its market share in categories that can grow especially quickly online.
Innovel Solutions allows Costco to expand its sales of appliances and furniture to members who don’t have the ability to bring bulky items home from the warehouse plus, in today’s environment, e-commerce sales are driving business. This was a prescient move on Costco’s part.
Makes a lot of sense to me – especially as Costco’s penetration in e-commerce lags others. As the customer continues to shift towards e-commerce, this acquisition can help accelerate the growth they are getting in-store currently.
I had first-hand experience with this last year and the installation experience was hugely disappointing with the Costco/Innovel combo – Innovel has already been doing Costco for a while. Separately Innovel has its history of partnering with Sears and which has a terrible reputation. It may make financial sense for Costco, but I doubt it will make any difference to consumers who buy appliances from Costco.
The acquisition is a good idea. Costco will exercise more control over a highly-specialized segment of delivery (large items), and reduce its cost in a business with already low margins. Can’t lose.
Costco just opened the door to become the premier go-to retailer for furniture, appliances, mattresses, and all products big, heavy and bulky! As a longtime Costco customer, buying bulky items was overwhelming logistically. Now white glove delivery under the Costco brand and value pricing structure is very, very exciting! Costco caveat: Costco must train delivery personnel to navigate and problem solve the installation of dishwashers, gas appliances, refrigerators and the like. Otherwise, there will be heavy damage to the Costco brand. To date, the retailers of bulky items have proven to provide hideous, time-consuming, ineffective delivery and installation experiences customers complain about for years. Bad customer experiences have a long shelf life.
This was a good move on Costco’s part. Led by Amazon, we are seeing many other retailers bring delivery in-house via acquisition (Target/Shipt, H.E.B./Favor). Many others, I believe, will build out their own delivery networks rather than acquire. This is undoubtedly driven by a desire for control and differentiation.
Boy, seldom if ever has an answer to a question been so dependent on timing: in the long term this is likely a good move, but in the short term? Happily, Costco is a well run/moneyed company that can withstand having bought something that may have little to do for several months.