Costco is staying 'Amazon-proof' as other retailers crumble

Amazon plans to open hundreds of bookstores around the US - something that could majorly impact the retail landscape.Business Insider  |  05 February 2016, 8:07 AM IST

Formerly, this was the one area that traditional retailers could definitively defeat the ecommerce giant.

Amazon plans to open hundreds of bookstores around the US - something that could majorly impact the retail landscape.

New physical locations demonstrate that Amazon is finally expanding into brick-and-mortar sales. Formerly, this was the one area that traditional retailers could definitively defeat the ecommerce giant.

"Our research shows that Amazon is the clear leader in understanding shoppers' preferences and delivering highly-personalized experiences - 56% of consumers say that Amazon demonstrates an understanding of their individual preferences and needs on a regular basis, while only 25% say that traditional retailers understand their preferences and needs," Hilmi Ozguc, CEO of beacon marketing company Swirl, told Business Insider in an email. "Traditional retailers have failed to bridge the physical and digital worlds - and that's impacting both loyalty and sales."

Can traditional retailers - especially those without huge digital footprints - compete with Amazon? Retailers like Target and Walmart are playing major catchup with new online and mobile programs as they attempt to do just that.

However, Costco is Amazon-proof on its own terms. In fact, in a few key areas, it seems that Amazon is taking cues from Costco.

In November, Deutsche Bank's Paul Trussell upgraded the company's stock's rating from hold to buy and dubbed Costco "Amazon-proof."

Costco has been able to hold its own because of its membership model and the ability to incentivize visits to brick-and-mortar locations.

The membership model is currently one of the hottest trends in retail. While there are newcomers in the membership space, Costco's 44.6 million households is an impressive figure, accounting for $785 million in sales in the fourth quarter.

Amazon understands the power of the membership model. There are an estimated 54 million Amazon Prime members in the US, who spend on average about $1,100 per year, compared to about $600 per year for non-members. Fourteen million of these members joined in 2015.

In addition to memberships, Costco keeps customers coming back by incentivizing in-store visits by offering items members need or prefer to buy in person - namely, cars, gasoline, and groceries.

Costco is one of the largest pizza chains in the country and a top auto retailer. Recent low gas prices have helped convince new members to sign up to buy gasoline at the chain. Despite their convenience, online businesses cannot provide a food court, a place to fill up a tank of gas, and a place to buy your car.

However, Amazon's brick-and-mortar locations represent an attempt by the company to become a place that people can make the purchases they avoid online. The bookstores will push devices like Kindle, Echo, Fire TV, and Fire Tablet - more expensive purchases that some customers may be reticent to buy without seeing in person.

Still, until the online retailer opens brick-and-mortar locations selling food, gasoline, or cars, Costco's business is safe - at least for now.