Retail

Costco CEO says company is doubling down on brick-and-mortar, even as it invests in e-commerce

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Key Points
  • "Our overall online business will continue to grow. Will we get tricky? No, we won't," Costco CEO Craig Jelinek told CNBC.
  • The in-store shopping experience will remain critical for Costco, Jelinek said.
  • "It's still important to get people physically in the stores. I still think brick-and-mortar is not going to go away," he said.
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Costco CEO Craig Jelinek told CNBC on Monday that the company's physical stores will remain critical going forward, even though the wholesale retailer saw a surge in e-commerce sales during the coronavirus pandemic.

"Our overall online business will continue to grow. Will we get tricky? No, we won't," Jelinek said on "Closing Bell." "We'll just continue to bring value on high-end goods and quality merchandise, and deliver either through the warehouses, brick-and-mortar, or through e-commerce." 

Costco had developed a reputation for its in-person shopping experience before the pandemic, with cheap items at its food court such as the hot-dog-and-soda combo for $1.50. But many Costco members have turned to its website this year, leading to strong online sales growth that many of its competitors also experienced.

For the 13-week period ending Nov. 29, Costco's total comparable sales were up 14.5% — but e-commerce, specifically, was up 82% compared with the same period in 2019. A similar trend ensued in the company's fiscal fourth quarter, which saw online sales increase 91% year over year.

"We're going to continue to build that business," Jelinek said, noting some of the technology investments the company made. In March, for example, Costco made a $1 billion acquisition of Innovel Solutions, which provides last-mile delivery services. It had been owned by the company that operates Sears and Kmart stores.

"We see a big opportunity to build our last-mile business in big ticket items, bulk items. ... Our apparel business continues to grow online," added Jelinek.

Even so, having members shop in store remains an essential ingredient for the retailer, Jelinek said. "It's still important to get people physically in the stores. I still think brick-and-mortar is not going to go away. We want to continue to get people in the stores, and there's no better way to do it than a $1.50 hot dog and a rotisserie chicken" for $4.99, he said.

During the pandemic, Costco saw customers stocking up on items such as toilet paper, leading to the imposition of limits on the number they could purchase. Jelinek said Costco has started to see some of the stockpiling behavior from shoppers return this fall as coronavirus cases across the U.S. rise and state and local officials implement public health restrictions again. However, he said it is "not quite to the same degree" as this spring during the pandemic's initial wave.

"They're still buying extra toilet paper, sanitary-type items and things like that to continue to make sure that they have because some of these items ... are going to continue being a long-term need," Jelinek said, predicting that some of the elevated buying patterns may persist into "probably the middle of next year, if I had to guess."

Shares of Costco closed Monday's session down slightly at $374 apiece. The stock is up about 27% year to date.

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