Can Amazon Subvert Costco In The Short Term?

The first thing to say is 2017.

After some big moves,

The stock price was really affected, for example, when Amazon announced the acquisition of Whole Foods in June 2017, Costco's share price plummeted by 13%. Although it quickly went back, Costco's share price fell by 7% when Amazon announced that it would reduce the price of the total supermarket.

So at least every retailer's share price is a bit sensitive to Amazon's latest trend.

1, Amazon threat

From the business model, Costco is unique: the consumer must be a member (either a paid member or a member of a family card that is invited by a paid member, an additional card member).

On the face of it, Costco can earn nearly $3 billion per year from membership fees ($2017 in fiscal year 2 billion 850 million), which is negligible compared with the total income of $129 billion (which is, in fact, $126 billion 200 million in sales and $2 billion 850 million in membership fees). But a closer look will show that Costco's net profit from goods is only $1 billion 260 million (equivalent to 1% of sales of goods), and the tax is $1 billion 330 million this year, and the operating profit of the company is 2 billion 680 million dollars.

That is to say, the real mode of Costco is to receive a huge membership fee through the sale of goods, which is the final profit of Costco than the membership fee.

Over the past ten years, the Operating Margin of Costco has not been more than 3%.

So Amazon and Costco are very similar from model rather than price. Amazon also has a successful member system Prime, which is as successful as Costco (annual fee of US $99). Although this system provides more services and privileges for Amazon consumers every year, research shows that Amazon's customers value most is "2 day service".

So, a data from Morgan Stanley shows that about half of Costco members are also members of Amazon. That is to say, these two companies are similar to those who serve similar behaviors, taking into account Costco.

Business is slow to develop. In the past year or two, WAL-MART and Taghit (Target) have invested a lot of money in the electronic business, and have achieved quite good results. Costco is the "traditional" doing its own store business. To be exact, the growth rate of the electricity business market is still 15%. The increase of Costco is only 11% (of course, the black five in 2017, the Christmas season, Costco's electricity supplier performance is quite eye-catching).

It can only be said that Costco still maintains "differentiation" with its competitors, because it prefers consumers to come to the physical stores, and users are shopping in boxes. It is impossible to imagine that the Costco electricity supplier sent more than ten boxes of water to the consumers. In the process, the logistics cost of Costco is much higher.

In addition, it is worth mentioning that the core consumer group of Costco, although its average income is $100 thousand a year, belongs to the high-end middle class, but many customers are not old enough. Most of them are over 65 years old. That is the group of wealthy and traditional shops.

At this time, comparing Amazon, you will find that the core consumer of Amazon is the younger generation. They like technology and prefer doing more things on computers and mobile phones.

Although optimistic from the perspective of Costco consumers are very expensive, but from the age, that is, the future of enterprises, Costco is also urgently needed to make some changes.

2, shopping experience

From the price point of view, Costco does not have much difficulty in killing Amazon, but "hoarding" and "instant buying" are two things after all (Amazon offers Prime NOW services in 1 hours and 2 hours in some US cities).

However, from the experience point of view, Costco can really provide "treasure hunt experience" in the store. The reason is also very simple. The Costco consumer ARPU is US $1395, and the average time to shop is $136, which means that they are on average 10 times a year, while the Costco turnover cycle is 31 days, which is equivalent to 12 times a year. This means that almost every time the store will have new products, it will also form a "treasure hunt experience".

Therefore, from the perspective of experience, Costco can still make good use of the advantages of in store and offline.

In addition, Costco's store has brought a "multitasking experience" to consumers. Coming to Costco means not only storing up goods, but also changing tires, filling up, buying medicine, printing photos, and so on, completing the demand of the middle class with "wasting time" as a whole.

3. Commodity problem

Products and services must be the core selling point of retail circles. From the product point of view, Costco provides large quantities of top brand products on the one hand, reduces consumers' choice phobia. On the other hand, it also helps consumers maintain their own margins through their own brand Kirkland Signature.

According to the world clothing and shoe net, although many people think that their own brands are cheap and quality goods, Costco's own brand is of high quality and low price. For example, Kirkland vodka is the same as the French grey goose, and its raw materials are of the same origin and quality. (among many blind reviews, Kirkland vodka is even higher than gray goose's score), and the price of Kirkland vodka is only half of the competitors.

It can be seen that its own brand is called an important differentiation strategy for Costco. It also explains why about 25% of annual sales come from private brands (from the quantity, private brands account for less than 20% of the total). Meanwhile, the price increase of private brand reaches 15% (rather than "must be approved by the board 14%"), which also guarantees the gross profit of Costco.

To sum up, Amazon is still unable to subvert Costco in the short term. (in fact, many new ventures have successfully managed to rush through the Amazon from the "Costco+" mode in some subdivisions. However, with the further aging of the core consumer group, Costco is in urgent need of some changes. After all, even though Costco has made good financial reports, its share price has not been greatly improved.

Of course, Amazon has recently done one thing to discuss acquisitions with Boxed, while Boxed is regarded as "Costco of young people".

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