The Joplin Globe, Joplin, MO

Business

May 9, 2012

Costco, left behind on e-commerce, hastens to catch up

SEATTLE — It’s a curiosity of how the Internet works that a shopper using a search engine to find a flat-screen TV probably will not turn up Costco Wholesale, a major television vendor and the country’s largest retailer after Wal-Mart.

Costco.com is not built to attract online hits, but it does decent business — about $2 billion in sales a year. It does so by offering everything from caskets to an 18.88-carat diamond, while attracting customers even more affluent than the average shopper at its warehouses.

Now the chain — based in Issaquah, Wash., less than 20 miles from the offices of online Bigfoot Amazon.com Inc. — wants to up its game online, and experts say it’s about time.

Costco.com hopes to launch mobile applications for Apple and Android this month, grow internationally in the coming year and improve its ranking in online searches.

“The stakes are very high,” said Vladimir Zwass, a computer-science professor at Fairleigh Dickinson University in Madison, N.J., and editor-in-chief of the International Journal of Electronic Commerce. “The growth of e-tail is far sharper than the growth of retail in general, and sooner or later those companies will simply eat Costco’s lunch.”

Currently, Costco.com ranks 17th among online retailers. Amazon ranks first and Wal-Mart fourth — and both are growing faster than Costco, according to the trade publication Internet Retailer.

“A lot of other chain retailers, including Wal-Mart, are doing things sooner, better and quicker, including going international,” said Mark Brohan, director of research for the publication. “Wal-Mart has included Sam’s Club (a Costco competitor) in its aggressive plans for overseas online sales, including China, and Wal-Mart is buying social-media companies to get hold of the always-connected buyer.”

Ginnie Roeglin, senior vice president of Costco’s e-commerce and publishing operations, said the chain does not appear in searches partly because “we don’t advertise and we don’t pay for search. We’re moving to a new platform that will be structured in a way to be picked up by search engines.”

Mobile apps are key, because they make shopping easier for customers who are increasingly — and constantly — connected, according to Zwass, the computer-science professor. He also sees social networking as important, particularly for a popular brand such as Costco.

“Town & Country magazine had a very flattering article on Costco, and they have fans in Beverly Hills — people who shop there, even though they don’t need to shop there, and love it,” Zwass said. “Costco has a lot to go to town with, and they aren’t going to town with it.”

Roeglin said the chain is exploring social media but has not dedicated much money or other resources to it, because it is focused on Costco’s core business and keeping costs down.

Holding down expenses is one reason Costco.com has been profitable since its first year in business, a rarity in online retailing.

The chain went online in November 1998, three years after Amazon. Its average sale is higher than at a Costco warehouse, Roeglin said, and many of its shoppers are Costco’s executive or business members — a fairly affluent group.

Its top category is electronics: televisions, cameras, computers, security systems and office machines. The second-largest is furniture, including leather sofas and love seats.

Costco.com carries a lot of large merchandise not always available in its warehouses: patio furniture, lawn-and-garden products, patio heaters, spas, sporting goods, fitness equipment and billiards tables.

It also does well with jewelry, including the occasional eye-popping diamond.

A $280,000 pink diamond ring Costco sold online this year included delivery by security company Brink’s. A popular leather furniture set — sofa, love seat and chair — recently sold for $1,999.99, including shipping and delivery.

Shipping is included in most purchases and features “white-glove delivery,” which means the item is assembled in the room of your choice and the service covers disposal of the packaging.

Costco sells online only in the United States and Canada for now, but hopes to expand to other countries in the coming year.

Nonmembers must pay a 5 percent fee to buy from Costco online. That means an expensive enough purchase could make the $55 standard membership fee worth the investment.

More than half of Costco’s 23 million U.S. households have registered with Costco.com and receive email alerts about special offers on the website. Many have bought online, too, “but not as frequently as with a warehouse, because we don’t sell food,” Roeglin said.

Still, surveys indicate a lot of members don’t know that the online store carries items not found in a warehouse and that the email specials they receive are unique to Costco.com, Roeglin said. “We have more work to do making members aware of the fact that it’s an additional selection online,” she said.

That may change when customers can more easily see Costco televisions and safes and other items through a Google search.

Costco officials won’t talk about particulars of their online upgrade, but the field of “search-engine optimization” — the technical process of tailoring a website so that it appears high in search results — has lots of consultants and one of the best known, Chris Silver Smith, of Dallas, found plenty wrong with Costco’s website.

“When you go to Costco’s TV page, the URL (or Internet address) is gobbledygook, and people don’t search with gobbledygook keywords,” Smith said.

Ideally, the Internet address for a page selling a flat-screen television would include the words “flat-screen television,” and possibly other keywords, such as “best prices guaranteed” and “shipping included,” he said.

Even photos on Costco’s website are labeled haphazardly, he pointed out, calling the practice “a rookie mistake, and lots of retailers screw it up.”

“They’re undoubtedly leaving some sales on the table,” Smith said of Costco.com.

Roeglin said many of those issues will be addressed with Costco’s new platform.

 

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