Costco Will Be a Thing of the Past and Here’s Why
It’s a heated debate. Americans either love Costco or Sam’s Club– there’s no in-between. Throw Amazon Prime into the mix and the bulk shopping feud reaches levels of disastrous proportions.
Those bitten by the Costco bug understand why America’s second-largest retail chain is so wonderful. It’s the only place where buying $100 worth of meat, Dungarees, and a kayak in the same trip is even possible. But store sales have been slowing recently and experts fear Costco isn’t immune to the struggles other big-box retailers are currently facing.
Times are changing, and if Costco doesn’t do the same, it could be in danger. Here are eight reasons why Costco could become a thing of the past sooner than you think.
1. Costco isn’t the only bulk retailer in town
At one point, Costco enjoyed its label as America’s preferred bulk retailer. Buying in bulk was considered a novelty if you were lucky enough to have a Costco nearby. Countless other companies like Sam’s Club and BJ’s jumped into the bulk ring intending to stick around, thus rendering Costco’s service offerings passé. It’s even been outshined by online delivery services like Boxed.com, which combines two things younger consumers love: buying in bulk and online shopping with delivery.
Costco must prepare for battle if it wants to stick around. Unfortunately, this isn’t something we’ve seen from the retailer just yet.
Next: Online shopping and millennials
2. Millennials strike again
Without millennial money, even the most iconic brands will become a thing of the past. It’s not a new claim that younger shoppers are partially to blame for the retail apocalypse, but even core giants like Costco are feeling the heat. Millennial instinct doesn’t have them firing up the Jetta for a drive across town, but rather logging online when they need a jumbo-pack of protein bars.
Though online options are available at Costco, the process is nowhere near as seamless as it needs to be to lure millennials away from their smartphones and the “order now” button.
“Today’s adults are not spending a lot of time shopping like my parents’ generation did,” said Kim Whitler, a marketing professor at the University of Virginia’s Darden Business School. “Gen X, Gen Y, Gen Z, they’re all time-starved and want to order groceries while they’re riding a bus to work.”
Next: Adapt or die
3. Costco is ignoring Amazon
Warehouse retailers have been lackadaisical about shifting their businesses online, offering home delivery, or instating other changes to compete with Amazon. Sucharita Mulpuru, an analyst at Forrester Research, says “Costco has been one of the least digitally forward companies out there. This segment has had its head in the sand when it comes to competing with Amazon.”
This is risky because the competition is stiff. Most of Costco’s demographic is middle- and high-income households — the exact same demographic as Amazon Prime. The kicker is that Amazon Prime’s $119 membership awards them more than just groceries and a growing number of bulk essentials. Costco’s $60 annual fee and product line can’t say the same.
“Retail is a zero-sum game: As consumers shop more at one company, they’ll shop less at another,” Mulpuru says.
Next: Why Costco is a total time suck
4. Shopping at Costco isn’t easy
In fact, it’s a bit confusing. Costco’s wonky layout is intended to confuse the shopper and send them on a meandering journey throughout the entire store. There’s no such thing as a quick in-and-out procedure at Costco. Turns out, this is a trick that grocery stores use to get you to spend more money. Shoppers routinely waste an entire Saturday afternoon in the warehouse — something that could easily work against Costco in the future.
Shoppers today aren’t exactly flush with time. Costco’s lengthy process could become a hinderance rather than a casual byproduct of bulk shopping if something doesn’t change soon.
Next: Costco faces a lose-lose scenario
5. Shoppers tend to skew older
The typical Costco shopper is two years over the national average, though walking the aisles on a Saturday afternoon shows more people in their 50s and 60s than those in their 40s. Older shoppers aren’t what we’d label digital trailblazers. Typical Costco customers don’t mind hauling 20-gallon tubs of mayo into their carts. In fact, they kind of prefer it. Costco knows they can win the hearts of the younger demographic by expanding online resources and utilizing more technology, but this might anger older shoppers who prefer to walk the aisles instead. Also, in-store shoppers are more likely to overspend at a physical location.
This leaves Costco in a predicament. Experts say Costco must adapt or die but adapting too far in either direction will alienate a lucrative demographic no matter how you slice it.
Next: Costco is still a store … and that’s a bad thing.
6. Costco is an inaccessible brick-and-mortar store
Brick-and-mortar stores of all varieties are already feeling the squeeze from consumers unwilling to shop for toilet paper and canned tuna in person. But Costco has a second issue impeding its success: Proximity. Nearly every American has a Walmart store within 15 miles of their home. There are almost 600 Sam’s Club locations (also owned by Walmart) in the U.S. directly competing for bulk shopper loyalty.
Sometimes, it’s the tiniest things — like physical proximity and access — that will spur a store’s downfall.
Next: A serious concern for Costco execs
7. Membership renewal rates declining
At this point, it should come as no shock that membership renewal rates at Costco are declining. Some shoppers see the annual membership as an additional expense that just isn’t worth it anymore. Given that it’s impossible to shop at Costco without a membership, sinking renewals could spell disaster for the bulk retailer’s financial future.
Unfortunately, analysts expect this to continue for another six months. “This remains a top focus for investors given concerns about the competitive environment and migration to online shopping,” Jefferies analyst Daniel Binder says.
Next: Employees are in danger, too.
8. Additional signs of impending doom
Costco is known for treating their employees well and paying them fairly. The company tends to avoid layoffs, but that could prove difficult moving forward as the retail sector falls behind. Failure to address customers needs is one of the reasons club stores are cutting jobs according to a Washington Post article.
Warehouse clubs and supercenters cut an average of 2,500 jobs each month in 2017. This is a direct shift from what occurred between 2009 and 2016 when warehouse stores added an average of 3,000 workers each month. Many fear these employee perks that appease customers will roll back once Costco gets serious about competing with Amazon and other retailers.
Next: But don’t count Costco out just yet…
Here’s why we think Costco will be just fine
Okay, so Costco is teetering on the edge of disaster. But that doesn’t mean it hasn’t made efforts to maintain its stronghold on the retail industry. For one, it’s expanded its selection of organic produce and meat, as well as its wine selection. The new Instacart service allows Costco to deliver non-perishables straight to the customer’s doorstep. Chef meal kits seem to be Costco’s next creative initiative to stay relevant. The meal kit market is a multi-billion-dollar industry, and Costco intends to capitalize on the opportunity.
In reality, the changes it has made — albeit slow — suggest Costco will probably be just fine. It remains America’s favorite home retailer and is currently enjoying a 15.7% increase in total revenue to $42.30 billion as of December 2017.
Next: Costco secrets you need to know to get the most bang for your buck.
You can (sometimes) shop without a membership
If you’re not ready (or willing) to buy a membership, you can still take advantage of the store’s great deals. The easiest way is to shop with a member, though they’ll have to pay for the purchases, not you. Or give your friend some money to buy you a Costco Cash Card. Once you have that bit of plastic, you can shop sans membership.
No friend or family member with a Costco membership? The store isn’t completely off limits. In some states, such as California, the store has to let you buy alcohol even if you don’t have a membership. The same is true for getting immunizations and filling prescriptions at the pharmacy. You can also shop at Costco.com, though you’ll pay a 5% non-member surcharge on your purchases.
Next: Costco is one of the cheapest places around for this.
Costco has some of the cheapest prescription prices around
If you’re paying out of pocket for your prescription medications, prices can vary widely from pharmacy to pharmacy. Discounts might be available off the list price, Consumer Reports noted, but many shoppers don’t know to ask for them. But Costco had some of the lowest upfront prescription prices for common generics of any pharmacy the magazine studied — in some cases, more than $100 less than big chains, such as Rite-Aid and CVS.
In some states, anyone can fill prescriptions at a Costco pharmacy. But if you’re a member, you might save even more by signing up for the Costco Member Prescription Program. Members might be able to save as much as 70% off the price of their medications.
Next: You won’t believe the prices at the food court.
The food court is insanely cheap
Want a lunch for less than 2 bucks? Head to the Costco food court, where a jumbo hot dog or Polish sausage and soda are just $1.50. The price hasn’t budged for 30 years (take that, inflation). Even better, if the food court is located outside the store, you don’t need a membership number to get the deal.
Hot dogs aren’t the only cheap eats at Costco. A slice of pizza is $1.99, or you can get a whole pie for $9.99. Chicken bakes are $2.99 and churros are $1 each. If you happen to be in Canada, you can even get an order of poutine for under $5.
Next: Shop the clearance items with this special code.
Clearance items have a special code
You won’t see big signs advertising clearance items at Costco, but that doesn’t mean they don’t exist. You just need to take a close look at the price label.
“Clearance items end in .97, and discontinued items have an asterisk in the upper-right corner,” Mike Catania of PromotionCode explained. (You can see what the price label will look like here.) “Since the .97 clearance items vary from location to location, there’s a cult following for them and even a dedicated site. You can sign up through that site to receive email notifications when a clearance item is listed at your local store.”
Next: Know the generous return policy.
The return policy is generous
Forget onerous return rules. Costco has one of the most flexible and generous return and refund policies in the retail industry. A no-questions-asked return policy applies to most purchases, with the exception of electronics, diamonds, and a few other items. You can even get a refund on your membership if you’re not totally satisfied.
“You can buy something new with confidence knowing you can happily return it if you don’t like it,” Matt from Costco Insider explained.
Next: Not everything is a deal.
Some things aren’t a great deal
Just because it’s on sale at Costco doesn’t mean it’s automatically a great deal. While you’ll save on many items, there are a few things to avoid throwing in your cart. Obviously, that includes anything you can’t use up before it goes bad. But a few other items also make the list.
“Books and DVDs are not a great deal at Costco,” Matt from Costco Insider said. “Amazon usually beats Costco pricing and also allows for digital downloads. Condiments are also not a great value. Remember, you can’t use manufacturer coupons at Costco, whereas you can use them at the supermarket.”
Next: You can even set this up at Costco.
You can register for wedding gifts at Costco
Brides and grooms on a budget already know you can buy your wedding bands and ceremony flowers at Costco. You can even order a cake to serve to your guests or book your honeymoon through the store. Now, you can also create a Costco gift registry, even if you’re not a Costco member.
Through a partnership with MyRegistry, engaged couples can add Costco items, including bedding, bath towels, cookware, and appliances, to their wish lists. You can even register for fine art or furniture — or car seats and diapers if you’re expecting a baby. Plus, your guests don’t need to be Costco members to shop at Costco.com. The only catch? Not everything sold at the warehouse store is available online.
Next: You’re a member everywhere.
Members can shop at any Costco in the world
Your Costco membership travels with you wherever you go, even if you leave the country. The warehouse store has hundreds of locations outside of the U.S., including in Canada, Mexico, the U.K., Japan, Taiwan, South Korea, and Australia. There’s even a Costco in Iceland.
The merchandise at international stores is tailored to the local market, so visiting one can be an affordable way to stock up on local delicacies. The South Korean stores sell a lot of sea cucumber and bulgogi, while you can find a case of Pocky and jumbo-size containers of Kewpie mayonnaise at Costco in Japan. Plus, picking up essentials at Costco can be a great way to save money if you’re moving or traveling abroad for an extended period of time.
Additional reporting by Megan Elliott and Emma Bleznak.
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