Costco quietly fixed a massive member problem

One of the biggest challenges facing any retailer is what happens once it lets a product out of its control. That’s why Amazon has been very aggressive about building a nationwide network of warehouses and delivery vehicles.

In many cases, the online retail giant controls the entire process. Technically, the delivery drivers are third-party workers, but they are generally under Amazon’s full control.

That’s not the case for most companies, and the problem gets bigger when an item gets more expensive. If my $35 grocery delivery from Walmart gets screwed up, it’s not that big a deal for the company to replace it.

If, however, I order a refrigerator from Lowe’s, something my wife and I did a few years ago, and the delivery truck never shows up, that’s a problem for me and the company.

In this case, Lowe’s was using a very large, well-known delivery company. That company was clearly telling the store manager very different things than what was actually happening.

The shipping service said we weren’t home, said that we refused delivery, and basically whatever else it could to shift the blame to us.

Our sales representative and even the store manager were trying to solve the problem, but the item was now with the shipping company. It was an ugly situation that made me uncomfortable ordering from Lowe’s again, even though it wasn’t really their fault.

Costco has largely ended that problem by creating Costco Logistics, its own company designed to handle big and bulky deliveries.

Costco plans to ship 85% of the items it defines as “big and bulky.”

Image source: Shutterstock

Costco built a delivery company

Costco built its trucking service back in 2022 when it purchased Innovel, a company previously owned by the owners of Sears. It was a ready-made answer to problematic delivery partners that the wholesale club scooped up as a distressed asset.

“Innovel, which was a subsidiary for Transform Holdco LLC, has for decades provided Sears and, more recently, third parties with ‘final mile' delivery, complete installation and white glove capabilities for ‘big and bulky' products across the United States and Puerto Rico. Innovel’s network offers coverage to nearly 90% of the U.S. and Puerto Rico. Products served through Innovel include major appliances, furniture, mattresses, televisions, grills, patio, fitness equipment and wine cellars,” Costco shared at the time of the purchase.

Now, the renamed Costco Logistics has been a wild success.

“It's about 20% to 25% of our total deliveries for Costco Logistics, but it is about 80% to 85% of our big and bulky,” CEO Ron Vachris said during the retailer's third-quarter earnings call.

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Even though Costco owns its own trucking company, Vachris made it clear that buyers still decide what gets shipped, and how.

“We make our buyers make decisions of what to put through that network and what not to put through it. And so, they look for the best cost delivery source. And so, we know that big and bulky patio furniture, televisions, safes, those kind of things, all but the super specialty stuff, we run through Costco Logistics. So, a big chunk of that business is going through the network of big and bulky,” he added.

Here's how Costco Logistics works

Costco Logistics has an absurdly basic website. But that actually makes it a better product. You almost can't make a mistake as a consumer.

The website does have a detailed FAQ where it spells out the entire delivery process.

“After your purchase, and once the merchandise has been received at your local delivery center, you will receive a ‘Scheduling Email Confirmation,' which will summarize your In-Home Delivery order,” it posted.

Below that is a very simple set of steps with illustrations.

How to schedule a Costco Logistics order:

Visit our Scheduling Site.
Enter the tracking or order number found in your Costco Logistics scheduling email and select Schedule Delivery or Return Pickup.
Select your preferred date, then select Continue to Questionnaire.
Answer the Questionnaire. Once complete, select Review Information.
Review your information for accuracy and enter an alternative phone number, then select Submit Request.

The site also has a button that allows customers to track their orders.

Adding Costco Logistics not only helped the company solve its delivery problems, it also helped it grow.

“We continue to grow share in big and bulky items sold online, powered by our investment in Costco Logistics. The combination of great values and the delivery experience that includes installation and haul-away of old items is resonating extremely well with our members and resulted in a 31% increase in items delivered in the quarter,” CFO Gary Millerchip shared.