Over the past few years, Costco has quietly invested heavily in its digital business.
Those efforts have paid off, according to CEO Ron Vachris’ comments during the warehouse club’s fourth-quarter earnings call.
“Digitally enabled sales, which include third-party delivery, exceeded $33 billion and was an increase of more than 20%,” he said.
Rather than build every digital capability itself, Costco has increasingly used partnerships to expand what members can do online.
“Over the last few weeks, we further expanded the ways in which our members can engage with us online with the announcement that our Uber Eats partnership is growing from 17 states to the entire U.S., as well as the expansion of our DoorDash partnership to include the U.S. These partnerships will complement the successful long-term partnership that we’ve had with Instacart in the U.S. and Canada,” he added.
In addition to these added deals, however, Costco quietly, and without any comment, shut down its Amazon-style marketplace, Costco Next, in September.
Now, the company has finally explained that decision and shared what it’s doing to replace that offering for members.
What was Costco Next?
Costco Next was an online marketplace that let members access items the warehouse club didn’t stock. It’s not a new service; it has technically been around since 2017. But Costco didn’t promote the offering, and it was something many members may not have been aware of.
For those who did use it, however, the shutdown was abrupt.
On the day it closed in September, members who visited the web page were greeted with a terse note.
“Access to Costco Next storefronts is no longer available. Please refer to the list below for contact information for vendors with active return policies. For eligible returns and warranty inquiries, contact the vendor directly,” the company shared.
That was followed by a long list of company names with their contact information.
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Costco Next, before its abrupt closure, gave members up to 40% off on select products not offered in the chain’s warehouses. The program featured items from a specific list of vendor partners, ranging from home goods and luggage to electronics.
Unlike Amazon Marketplace, Costco sold the items, but they were shipped by the participating companies, which also handled returns.
Costco has quietly invested in digital, even as it closed the Next marketplace.Shutterstock
Costco finally explains Costco Next shutdown
Costco CFO Gary Millerchip spoke about the shutdown during the warehouse club’s fourth-quarter earnings call.
“Some of you may have noticed that we recently made the decision to discontinue our extended marketplace offering, Costco Next. As our digital capabilities mature, we believe that integrating the most popular items and brands from Costco Next more seamlessly into the Costco app and website provides a better member experience and will increase sales,” he said.
“This change is not material to our results,” he added.
The decision represents a significant change from how Costco described the program in 2024.
At the time, Millerchip said Costco Next was growing nicely and described it as a “tremendous upside opportunity.”
“Costco Next, our curated marketplace, also continues to grow nicely. And we added eight new vendors in Q3, bringing the total to 75,” he said during the chain’s third-quarter 2024 earnings call.
Millerchip also made it clear that Next was different than other marketplace offerings.
“I think the difference for us on that would be, of course, that we are with Costco Next. It’s just being very curated for the members. So, we’re unlike a traditional marketplace that is about maybe just sheer volume. For us, it’s about making sure the members are getting something that truly is unique and valuable and consistent with who we are,” he added.
At the time, the CFO expressed strong support for the program.
“And it’s a tremendous upside opportunity there in that regard,” he said.
Costco did not answer a request from TheStreet for comment at the time of the shutdown.
Here’s what’s next for Costco digital
Costco site and app traffic was up 30% in the fourth quarter, according to remarks made during the earnings call.
“During the quarter, we continued to accelerate personalization, including enhanced product placements and e-mail communications. Our approach is resonating well with members, leading to triple-digit growth in sales from personalized initiatives in Q4, and 10% of all costco.com orders now include a personalized item,” Millerchip said.
He also talked about the company’s growing digital use of artificial intelligence (AI).
“While starting from a low base relative to other channels, AI continues to grow in its influence on how our members are searching for products. Traffic to our site from AI search grew triple digits for the second consecutive quarter and continues to show the highest conversion rate of all site traffic,” he added.
RTM Nexus CEO Dominick Miserandino told TheStreet that Costco has a very simple motive with its tech investments.
“Costco isn’t digitizing for buzz. Its digital and in-store tech is translating directly to faster service and stronger member engagement,” he shared.
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