Dive Brief:
- BMO Capital Markets has raised its rating for Costco shares, citing the company's surging online sales growth, according to CNBC. The Wall Street firm updated its price target for the stock to $215 from $160 — a 12% gain from Friday's close.
- Costco’s online sales rose more than 40% in its most recent financial quarter, versus the 21% growth in the previous quarter. This e-commerce growth was driven by recent improvements to the company website, its new grocery delivery service and an enhanced partnership with Instacart.
- Strong online sales are expected to continue, bolstered by Costco's membership renewal rate, which held steady at 90 percent in the U.S. and Canada following several declining quarters.
Dive Insight:
Costco, which has traditionally put its in-store experience ahead of online sales, has shown it can put out a solid e-commerce offering to customers. Moreover, last week’s strong financial earnings results, including a 41% boost in its e-commerce division, has some Wall Street analysts believing online shopping could significantly boost the club retailer's overall performance.
In October, Costco launched CostcoGrocery, a two-day delivery service for shelf-stable products. At the same time, the company announced an expanded relationship with Instacart. In a conference call with analysts Thursday, Costco CEO Richard Galanti said most of the company’s e-commerce growth came from Costco.com and CostcoGrocery sales. He characterized its expanded relationship with Instacart as a “soft opening” and said the partnership will see an increased promotional push in the coming months.
The Instacart partnership promises to capitalize on Costco's advantages in fresh products — including its industry-leading assortment of organic produce. Offering more high-margin perishables to more online customers plays a big role in BMO's bullish outlook for the company.
Costco’s e-commerce business is all the more impressive when compared to that in the grocery industry. The club retailer’s online growth is close to twice the average rate traditional grocery stores are seeing, according to estimates from consulting firm Brick Meets Click.
Amazon continues to be the dominant e-commerce platform, and considering that around half of Costco members are also Prime members, it remains a considerable threat to the club retailer. However, LendEDU, an online student loan refinancing marketplace, found that Amazon prices on average were 56.48% more expensive than the same products found at a Costco store shopped by company researchers. If these prices are also reflected on Costco’s website, expect them to steal away more of Amazon’s online sales.
As its e-commerce sales grow, look for Costco to update its website to duplicate — to some extent, at least — the ‘treasure hunt’ sensation customers have when roaming the warehouse store’s aisles. As it stands now, its online customers don’t spend as much money with the company, despite having more than twice as many products to choose from.
Costco’s recent e-commerce growth is a terrific boost for the company, but will remain second fiddle to its brick-and-mortar stores. “At the end of the day we would love you to just come in and buy and take it home,” Galanti said in October, adding that “we would rather lose it to ourselves” instead of letting other retailers snap up the business.