Who’s Afraid of Amazon? Not Costco, Says Craig Jelinek

This spring, Amazon launched a service that many saw as going directly after Costco and its big box brethren. The “Everything Store” would now be shipping discounted toilet paper, laundry supplies, pet food and a host of other packaged groceries that shoppers love to stock up on at Costco. The service, dubbed Prime Pantry, wouldn’t offer these products in giant, Costco-esque sizes, but Amazon spun that as a plus. “No more buying in bulk. Buy what you need, when you need,” Amazon announced.

Would Costco fight back?

Well, some have been speculating that such is the plan behind a big campus expansion envisioned by the big box retailer. Costco is working out an agreement with the city of Issaquah to build up to three more buildings as tall as 10 stories high. Is Costco planning on building warehouses to stock a wider assortment of e-commerce goods as it goes head-to head with Amazon? Or perhaps the extra buildings will house new technical teams.

An all-out fight between two of the world’s biggest retail brands—both based in the Seattle area—would certainly be a spectacle. People would take sides. Costco, mind you, has generated near saintly status for its generous treatment of workers. (CEO Craig Jelinek told me earlier this year that he considered a $15-an-hour minimum “fair” and “barely livable.”) Amazon pays fantastically, of course (as least for those not working in its warehouses), but has made enemies with its heavy-handed tactics, shown most recently in its high-profile debate with publishing company Hachette.

So I called Jelinek this week to ask him what’s going on. Nothing that dramatic, as it turns out. Costco’s CEO says the campus expansion plan is meant to accommodate the normal, steady growth that the company has been experiencing. “We’re going to open about 30 Costcos a year,” Jelinek says. That will double its business in about 15 years.

Costco is also beefing up its e-commerce side to some extent. Already offering online shopping in the U.S., Canada, Mexico, the company is about to launch e-commerce sites in Taiwan, and Korea, Jelinek says. Plus, Costco also makes its goods available through Google Shopping Express.

On top of that, the Issaquah retailer is dabbling in some kind of online delivery service through Uber. That’s right, the upstart ride share company, which has already experimented with delivering ice cream. “They come in to buy from us sometime,” says Jelinek, who then has second thoughts about making this revelation, adding that he’s not prepared to say any more.

And yet, Jelinek does not seem particularly exercised about ramping up Costco’s e-commerce, nor worried about the threat from Amazon. “It has not affected our business at all,” he says of Prime Pantry. In fact, you could say that e-commerce as a whole has not affected his business that much. Unlike many brick-and-mortar retailers which are losing customers and going out of business due to Amazon, Costco’s physical stores are “running a 5 percent increase in traffic year over year,” Jelinek says. “We’re one of the few retailers continuing to grow.”

Perhaps Costco’s shoppers like to see their produce. Or perhaps they like the unexpected and ever-changing finds they can discover in the aisles. Whichever, Jelinek depicts physical stores as central to the Costco brand. “That’s what we do.” Last year, 98 percent of the company’s 105 billion in revenues came from its brick-and-mortar operations.

Sure, he acknowledges, tech-mad Wall Street exerts pressure on Costco to jump more deeply into e-commerce. And the company could do so “at a moment’s notice,” Jelinek claims, adding that Costco, with 450 locales, wouldn’t have to build any new distribution centers.

But he says he doesn’t see any point in that. “There’s a cost to doing all these things,” he says. If a customer orders online, somebody’s got to pick out the goods from the aisles. And then there are shipping fees.

“At some point you do have to be profitable,” he says in a subtle dig at Amazon, whose enormous sales belie its slim profits. Costco’s profits, in contrast, are rising by double digits. Which gives him an unusual confidence. “Amazon is Amazon,” he says, dismissing the notion of a looming battle. “Costco is Costco.”

 
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