Is This Wholesale Clubber Safe From Amazon.com, Inc. (AMZN)? – Costco Wholesale Corporation (COST)

Food fight!
Central to Costco’s business model is getting members returning to their warehouses on a regular basis. Once inside the warehouse, there’s a high chance members will be buying more than they’ve bargained for. One of the most effective ways Costco gets its members to return is with a fresh-grocery store, accompanied with free food samples. This key characteristic provides Costco Wholesale Corporation (NASDAQ:COST) with a great opportunity to instill in its members its core philosophy of relentlessly improving quality while driving down prices. Naturally, instilling this philosophy was a huge contributor to Costco’s impressive 89.8% membership renewal rate last quarter.

The power of numbers
It’s estimated that Amazon has 182 million active members, a number that gives it a tremendous base to market its Prime membership. The more services Amazon can bolt onto its Prime membership, the more enticing the $79 annual fee becomes. As more Amazon users convert to Prime members, the cheaper it will become for Amazon to provide membership benefits on a per-user basis. In other words, investing in added membership benefits could come at a fraction of the cost relative to the potential return of increased sales.

Over the long term, it seems that Amazon.com, Inc. (NASDAQ:AMZN) will continue on the path of becoming more like Costco in terms of adding more membership services to drive increased value to its brand. However, it’s not going to be easy for Amazon to directly poach Costco members, given the company’s high membership loyalty. As long as Amazon doesn’t figure out how to offer free food samples while you shop online, I think Costco Wholesale Corporation (NASDAQ:COST) will continue to remain rather Amazon-resistant.

The article Is This Wholesale Clubber Safe From Amazon? originally appeared on Fool.com and is written by Steve Heller.

Fool contributor Steve Heller has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Costco Wholesale (NASDAQ:COST), and Morningstar and owns shares of Amazon.com and Costco Wholesale.

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