Costco trades e-commerce for loyalty

Despite the race by most retailers to compete in the quickly growing e-commerce sphere, Costco (NASDAQ:COST) has managed to avoid the competition with only 3 percent of its sales stemming from online. Instead, the members-only warehouse seems to garner success from its loyal shoppers. Membership reached an all-time high of 81 million this year.

The retailer's goal has been to boost sales and cut costs through measures such as scaling merchandise, negotiating prices with vendors and reducing packaging, according to CFO Richard Galanti. The focus is vastly different than that of competing warehouse Sam's Club (NYSE:WMT), which now has a new strategy to try and capture wealthier shoppers.

"Our rule is to give 80 percent to 90 percent back to the customer," Galanti told Fortune.

Costco's same-store sales have increased for six straight years, taking revenue from $76 billion to $114 billion. The retailer has done this through three methods.

First, repeat customers. Renewal of memberships is at 91 percent, a record high. The low-priced membership returns a steady stream of loyal shoppers.

Second, while some retailers--Target (NYSE:TGT) and Walmart--only recently raised the minimum wage for their workersCostco's hourly pay starts at $11.50 and on average is $22. In the long run, this translates to less employee turnover.

Finally, in 2016, Costco is changing from American Express to Visa for its credit card program. The change, according to analysts, will results in lower costs for cardholders.

For more:
-See this Fortune article

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