Costco’s Vying For A Stronger Online Presence

by Trefis Team
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Costco (NASDAQ:COST), the world’s largest warehouse chain, is working toward strengthening its online presence. According to reports, it is planning to launch mobile applications for Apple and Android products this month. This would enable it to tap the growing market of smartphone users who rely on the online medium for most of their purchases. At present, Costco’s online sales are about $2 billion, representing approximately 2% of its total sales. [1]

We currently maintain a $91.25 price estimate for Costco’s stock, implying a 10% premium to the market price.

See our complete analysis for COST stock here

Brick and Mortar Retailers Focusing on Online Growth

According to Internet Retailer, Amazon (NASDAQ:AMZN) dominates the online retail market maintaining its leading position. Other brick and mortar retailers such as Wal-Mart (NYSE:WMT) and Costco rank 4th and 17th, respectively. [2] Online sales are expected to witness an impressive growth over the coming years with increasing penetration of Internet and smartphones. According to research firm Forrester, the U.S. online sales are expected to reach approximately $279 billion by 2015 from $199 billion in 2011. [3]

  • Wal-Mart is trying to build its online presence by acquiring social media companies. It recently launched a more advanced search engine that focuses on related words and phrases that people use for searching products, rather than the exact matches as per the product listings. [4]
  • Target (NYSE:TGT) is working at creating a platform that would integrate its stores, online mobile platforms and social media. It has also decided to phase out Amazon’s Kindle at its stores and on its website.

At present, the online retail market is undergoing swift changes due to rapid changes in technology. Therefore, it surely is a wise strategy for Costco to invest its resources in solidifying its online presence by following the path of its competitors.

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Notes:
  1. See: Costco hatches plan to kickstart online sales, Business Weekly []
  2. See: Costco to boost online sales, Calgary Herald []
  3. See: Online Retailing: Britain and Europe 2012, Centre for Retail Research []
  4. See: EBay, Wal-Mart search for revved-up search engines, Reuters []
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