Will curbside pickup be Costco’s Achilles heel?

Discussion
Photo: @BCATT via Twenty20
Sep 25, 2020
George Anderson

Costco’s membership business model certainly isn’t broken and so there doesn’t appear to be a need to fix it. That said, some believe that the biggest warehouse club in the land is in danger of losing sales to other retail rivals as they cater to consumers’ newfound appreciation for curbside pickup.

The company has said that its clubs are not set up to properly handle the pickup of online orders. It has also touted the benefits of getting members into its clubs to make incremental purchases. While no one is denying the latter point, in particular, some think that Costco is ceding grounds to its retailing rivals.

Sam’s Club and BJ’s Wholesale Club, Costco’s most direct competitors, both offer free curbside pickup at all their U.S. locations. For Sam’s the offer extends to customers with a Plus membership. BJ’s offers the service free to all its members.

Costco is “behind the ball,” Timothy Campbell, an analyst at Kantar, told CNN. “They risk falling behind if they don’t invest in pickup. You have customers establishing routines with other retailers.”

Speaking on Costco’s fourth-quarter earnings call yesterday, CFO Richard Galanti addressed the chain’s thinking on offering pickup at its clubs. “We continue to look at what others do, we continue to scratch our head a little bit,” he said. “It’s not that we’ll never do it, but it’s not on the agenda for this week.”

Retailer results and consumer research point to curbside pickup remaining popular and possibly growing more so with American consumers. Fifty-nine percent of consumers said they were more likely to use curbside pickup following the coronavirus pandemic. A RIS News study found that 44 percent of retailers were using curbside pickup and a third of those without it were pushing to add the service as soon as possible.

“We think curbside is going to be exceptionally sticky,” McKinsey senior partner Sajal Kohli told Yahoo Finance last month.

“The fundamental question for most retailers is, if you think about the retail box and the physical footprint, what’s the strategic intent of the box in the world of omnichannel post-COVID? Some categories are still going to be incredibly conducive to in-store interaction, but for several categories, I think consumers discovered this newfound convenience and they will actually stick to curbside, which has massive implications, as you can imagine, for retail.”

DISCUSSION QUESTIONS: Do you think Costco is ceding sales to competitors because it doesn’t have a pickup option at its clubs? Is there a P/L case to be made for curbside pickup or is Costco correct in its assessment that the service doesn’t make financial sense?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Their strength, product assortment, Kirkland brand and overall strategy are largely decoupled from typical e-commerce oriented competitors."
"I am sure that Costco has a team watching this space closely already and it wouldn’t surprise me if they have one or more plans that could be executed if and when they decide."
"Based on results so far, it’s hard to fault Costco’s decision — I still believe e-commerce is a bigger opportunity."

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34 Comments on "Will curbside pickup be Costco’s Achilles heel?"


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Neil Saunders
BrainTrust

One size does not fit all in retail. While Costco absolutely needs to keep this under review so that it can quickly respond to changes in the demands and habits of its consumers, at present not having curbside has not harmed the business. The model operated by Costco means curbside is not a necessity right now. The latest sales numbers attest to this: they are very strong and show Costco is increasing share, albeit slightly.

David Naumann
BrainTrust

While Costco may be missing out on incremental revenues by not offering curbside delivery or even BOPIS, its shoppers are so loyal and it is not making a dent in its overall sales results. There is no doubt that consumers are coming to expect BOPIS and/or curbside pickup and it is something that Costco may eventually offer. Due to its busy parking lots, maybe pick-up lockers would be the best approach.

Mark Ryski
BrainTrust

Costco continues to perform well, despite not having curbside pick-up. While curbside has most definitely become an important and popular service option, I doubt that Costco will suffer by not having it given the loyalty of their customers. Providing an effective curbside pick-up service will add extra cost and complexity to an already very busy retail environment. Notwithstanding competitors offering the service, I think Costco management is right in go slow on this for now.

Bindu Gupta
BrainTrust

Curbside pickup or BOPIS equal convenience for customers. Once you get into the habit of getting something with more convenience, why would you go back to the old ways? For Costco, if they don’t provide this convenience soon they might see a drop in their membership renewals and sign-ups.

Ed Rosenbaum
BrainTrust

My last visit to Costco was yesterday. The parking lot was crowded for a Thursday morning. The store was busy. Yes, Costco may lose some business because of their lack of curbside pickup. But you wouldn’t know it from the activity in the store where most people were social distancing and actively looking for what brought them to the store. Costco does not appear to be lacking for business during the pandemic.

Dr. Stephen Needel
BrainTrust

Costco has a business model that works and, more importantly, products their regular customers want (i.e. Kirkland). I’m sure there are some people who are not going into Costco right now. Will that change in the (hopefully near) future? Sure, and we’ll all get our $1.50 hot dogs again and all will be right with the world. If their P/L calculations say it’s not a big issue among their shoppers, they shouldn’t do it anyways.

Suresh Chaganti
BrainTrust

The risks for Costco are overstated. The brand and the structural underpinnings are extremely strong. One of the things shoppers like about Costco is browsing through the aisles. Curbside pickup is probably the last thing on customers’ minds to decide whether to shop at Costco or not.

Costco has never been overly aggressive in e-commerce or two-day shipping or even free shipping. If they do offer curbside pickup, they will probably charge fees for that. Their strength, product assortment, Kirkland brand and overall strategy are largely decoupled from typical e-commerce oriented competitors.

Mohamed Amer
BrainTrust

No argument that Costco is one of the strongest retail brands and has done exceptionally well. I would simply advise them to reconsider how they can tap into this growth opportunity without risking their existing model. It can be a more significant win-win than they realize.

Ian Percy
BrainTrust

IMHO, here’s the key point. Costco is destination shopping. People, especially over the last six months but even well before that, go there as an event, for something they enjoy doing. It is not a drive-through sensory-deprived experience.

Costco — don’t change a darn thing! “Me too” is not for you!

Lee Kent
Guest

I’m with you Ian! My husband, the shopper in our household, does not go to Costco every day like he goes to Kroger. He goes for big things and for whatever else takes his fancy. It is truly an adventure. Why, on his last trip he came home with a sweater for me! I don’t think they need to change a thing yet but it is always a good thing to keep your eye on the ball. For my 2 cents.

Kathleen Fischer
BrainTrust

Speaking as a consumer, I did not renew my membership because of the lack of pickup options so they have lost my business. I may revisit membership again in the future but for now, I am not a Costco customer.

Ben Ball
BrainTrust

My knee-jerk reaction is to say “YES!” — I definitely believe curbside pickup is a value-add that most retailers will need to stay competitive post-COVID-19. But then I did a quick mental rewind of my last month’s shopping and realized I have been in Costco three times and have plans to go again today. The reasons are pretty simple — selection and brands I like and trust, stores and aisles with plenty of room to avoid other shoppers, the fact that Costco required masks and controlled social distancing in checkouts physically with markers and personnel before anyone else in our small city, and the dramatic increase in speed for checkout provided by their new checkout configuration. No curbside won’t keep me from Costco and won’t get me to other warehouse clubs.

Ken Morris
BrainTrust

I do think Costco is losing market share despite their sales increases which are COVID-19 driven rather than related to innovation connected to the COVID-19 new customer journey. People are locked into a membership so they will continue shopping until it is up for renewal. Costco needs to consider a new Store of the Future strategy. One that focuses on the new customer journey (stressing touch-less with BOPIS, BOPAC, etc.) vs. operational efficiency. Innovating when you are on top is an Amazon model Costco should emulate.

Michael Terpkosh
BrainTrust

I agree with Costco that they are not set up to handle store pickup. That’s not saying they can’t get there, but their parking lots are already overly busy with traffic and customer pickup can only make it worse. I do want to give Costco some credit. They are installing self-checkout lanes and I have seen Instacart employees picking orders for home delivery. Costco is innovating to meet customer needs. They are just not jumping into every possible innovation.

Bob Amster
BrainTrust

If we look at Costco’s financial performance through the pandemic, we can see that Costco has not suffered and, in fact, has flourished. This just doesn’t seem to be a business that dearly needs to institute BOPIS. Also, and as many have mentioned, their parking lots don’t seem to allow for this added congestion.

Tony Orlando
BrainTrust

Costco doesn’t need to change a thing, as the costs to do this are not worth the effort. Those who are afraid to go into stores will choose another store that offers this service. They are packed all the time from opening till closing, and adding BOPIS will cut into their bottom line. Some folks think this should be free, which is fine for stores who want to eat the costs. They will continue to thrive and make their shareholders happy.

Gene Detroyer
BrainTrust

The story of most good companies who have failed is that they bought into the idea “Things are great now. We are growing. We are making money.” These companies have historically ignored product, behavior and economic trends.

I am not suggesting that Costco will fail. They seem to be very well managed and I would think they know that offering time-saving convenience will continue to be the key to successful businesses that deal with the consumer.

As companies offer more and more convenience, shoppers will demand more and more convenience. Convenience is a hyper-trend and it will not subside until everything is so convenient and pervasive that people just take it for granted.

Richard Hernandez
BrainTrust

I really don’t see that they need pickup at their clubs. From what I have seen, their clubs are packed even without that option. Additionally I can order from the website and get Costco product within a few days. They are doing fine without BOPIS. Plus – I really don’t see where they can add it on the front of the store — there is way too much traffic and people are constantly loading large items into their vehicles.

Steve Montgomery
BrainTrust

Costco was built on the treasure hunt concept. While its customers are looking for the items they came in to buy they are exposed to things they didn’t know they wanted or needed. This silent upselling has worked extremely well for Costco. Buying online does not offer the same type of treasure hunt experience. I agree with Bob that this is something for them to continue to consider and maybe even experiment with but not something that they should be rushing to implement.

Ian Percy
BrainTrust

Absolutely right, Steve. You can count on it, every Costco trip will cost you $100 and you only went there for a chicken!

Mohamed Amer
BrainTrust

Once more, retailers need to think about curbside pickup the way the drive-thru model added convenience and boosted sales for quick-serve restaurants. Costco needs to redesign the significant space around their store real estate to tap a growth stream triggered by a pandemic but that is here to stay.

Ryan Mathews
BrainTrust

In a word, “No!” From a consumer’s point of view Costco has always been something of a logistical nightmare — crowded parking lots, wandering shoppers, choke points at the demo stations, long checkout lines, etc. And apparently their shoppers love it. Thinking of my local Costco I can’t imagine how they would begin thinking about setting up pickup stations, irrespective of financial issues. So yes, they may lose some sales, but I don’t think it will create any significant negative effects.

Jeff Sward
BrainTrust

It might not make financial sense for Costco. Surely there is a study that shows what percentage of in-store purchases were planned and what percentage were discretionary. Their whole entry hall I think is one of the most productive aisles in the store and is filled with impulse items that probably weren’t on anybody’s planned list. It might be as simple as Costco does not want to give up the level of discretionary purchases that they enjoy. I have to believe it’s higher than most retailers.

Dick Seesel
BrainTrust

Costco was the first major retailer to require masks in order to enter the store. Despite the absence of curbside pickup, the company earned credibility even among nervous shoppers who avoided other stores for months. Based on results so far, it’s hard to fault Costco’s decision — I still believe e-commerce is a bigger opportunity.