In our investment partnership meeting yesterday, we discussed Amazon’s (not-so) surprising takeover of much of the retail world. One of the partners asked what we thought of Costco’s impending demise, and several people thought that Amazon should buy out Costco, so that they also have a brick-and-mortar (B&M) presence.
Wait, what? I thought the entire reason for Amazon’s success is that people don’t want to go to a B&M building. Clearly, people are conflicted about the future of B&M retailers.
Amazon will not be buying Costco as Costco will not sell to Amazon. It is a scenario where both brands will be tarnished. What will happen is that Costco will continue to serve bulk customers and business customers. Amazon will continue to compete primarily with Walmart. Walmart will have a chance to knock them out if they can make their supply chain more efficient than Amazon. However, I do not see this happening, and it will be a race to the bottom (in terms of consumer prices). We all will benefit.
A study conducted by BMO Capital Markets finds that Costco’s online pricing is lower than Amazon’s.