Costco is just beginning to tap into the potential of e-commerce and is poised to emerge as a major player in online retail. That will boost business and stock price. According to a research note published by JP Morgan on Monday, all companies, including Costco, are chasing Amazon, which accounts for 45% of U.S. e-commerce sales. In fact, the analyst predicts that Amazon, including brick-and-mortar stores, will overtake Walmart this year to become the world's largest retailer. While it's unlikely to compete with Amazon or Walmart online in the near future, Costco can carve out a lucrative e-commerce path with its loyal, value-conscious customers. “Online share is a key part of the bull case for Costco,” JP Morgan said. Loyal members are willing to spend more online at Costco, “given the value/quality and cashback,” the analyst added. In 2023, e-commerce will account for just 6% of Costco's sales, compared to 23% for the industry. That means the possibilities are endless.Jim Cramer said Monday that club stock Costco has “much more room to go” after rising 28% year to date. That's more than double the S&P 500's gains and about three times the consumer staples sector's performance in 2024. Costco closed at a new all-time high on Monday. JPMorgan said Costco has “great opportunities to better target customers and leverage its deep database of flawless data, and e-commerce is still in its infancy.” The analysts added that online growth will also help Costco sell ads against its website traffic, a new revenue stream that is benefiting both Amazon and Walmart. In a separate note on Monday, Morgan Stanley said the retailer should be able to increase its profit margins by 2 percentage points over the next five years by leveraging selling ads against online traffic, automation and artificial intelligence. The analysts specifically named Costco, along with Walmart, Target and Kroger, as among the “likely biggest winners” of these catalysts. COST .SPX Year to Date Costco vs S&P 500 Year to Date Costco's third quarter fiscal 2024 e-commerce total sales increased 20.7% year over year, while Costco app downloads increased 32%. Site traffic and order volume increases were driven in large part by high demand for gold and silver bullion, gift cards, and appliances. In addition to the e-commerce topic, JP Morgan mentioned Costco's logistics network, strengthening “e-commerce fulfillment of bulky items.” In a conference call after the earnings release last month, Costco CFO Gary Miller Chipp said logistics “has proven to be a real differentiator for us in terms of member experience, especially with respect to appliances.” Other online initiatives include CostconNext, which allows members to shop at Costco member prices and value on supplier websites, and partnerships with Instacart and Uber to provide delivery options for customers that compete with Amazon. As we've said before, Amazon is building its own fulfillment network, which is regionalized for fast and efficient delivery. Another boost to Costco's online push is that it can offer more than twice as many SKUs (stock-keeping units) online as it does in its stores. JPMorgan estimates that Costco offers about 3,700 SKUs in its stores, compared with tens of thousands in other large stores. As part of its business model, Costco carefully selects its product lines based on certain attributes, such as quality and price. JPMorgan said that moving more merchandise from warehouse stores to online allows Costco to expand its assortment and “enhance the value proposition to members while maintaining club productivity.” (Jim Cramer's Charitable Trust is long COST and AMZN. See the full list of stocks here.) Subscribers to Jim Cramer's CNBC Investment Club receive trade alerts before Jim makes a trade. Jim buys and sells stocks in the Charitable Trust's portfolio 45 minutes after he sends out a trade alert. If Jim talks about a stock on CNBC television, he executes the trade 72 hours after he issues the trade alert. The Investment Club information above is subject to our Terms of Use and Privacy Policy, as well as our Disclaimer. Receipt of any information provided in connection with the Investment Club does not create any fiduciary duty or obligation, and no particular results or benefits can be guaranteed.
A general view of Costco Wholesale at Lakeside Retail Park in Grays, England, on February 5, 2024.
John Keble | Getty Images
Costco Though the company is just beginning to tap into the potential of e-commerce, it is poised to emerge as a major player in online retail, which should boost its business and its stock price.
