How Costco is expanding e-commerce on 3 fronts and what's next for the record-high stock

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Costco has only just started to tap into its e-commerce potential and is poised to emerge as a major player in online retail. That will drive business and its stock. Everybody, including Costco, is chasing Amazon, which accounts for 45% of all U.S. e-commerce sales, according to JPMorgan in a research note Monday. In fact, the analysts estimate that Amazon, including its physical locations, will overtake Walmart this year and become the world's overall largest retailer. While unlikely to compete at the level of Amazon or Walmart online in the near future, Costco could carve out a lucrative e-commerce lane with its loyal, value-orientated customers. "Online share is a key part of the COST bull case," JPMorgan said. Engaged members want to spend more online at Costco "given the value/quality and cash back," the analysts added. In 2023, e-commerce accounted for only 6% of Costco sales compared to an overall industry number of 23%. So, the sky is the limit. Jim Cramer said Monday that Club stock Costco has "much more upside," even after its 28% run year to date — more than double the S & P 500's gain and roughly triple the consumer staples sector performance in 2024. Costco on Monday closed at another record high. Costco has an "incredible opportunity to better target customers and leverage its rich database of perfect data and is still in its early innings" of e-commerce, JPMorgan said. The analysts added that growing online would also help Costco sell advertising against its website traffic — a new revenue stream that has benefited both Amazon and Walmart. In a separate note Monday, Morgan Stanley said that retailers capitalizing on selling ads against its online traffic, automation, and artificial intelligence should be able to increase margins by 2 percentage points over the next five years. The analysts specifically called out Costco as one of the "biggest likely winners" of these catalysts, along with Walmart, Target , and Kroger . COST .SPX YTD mountain Costco vs. S & P 500 YTD Total e-commerce sales during Costco's fiscal 2024 third quarter grew 20.7% year over year and Costco app downloads were up 32%. Much of the higher site traffic and order volume was led by high demand for gold and silver bullion, gift cards, and appliances. Adding to the e-commerce story, JPMorgan cited the Costco Logistics network, which has amped up "e-commerce fulfillment of bulky items." During the post-earnings call last month, Costco CFO Gary Millerchip said that Logistics is "proving to be a real differentiator for us on the member experience," particularly on appliances. Other online efforts include Costco Next, which allows members to shop suppliers' websites at Costco member prices and value, as well as partnerships with Instacart and Uber , which offers delivery options for customers that compete with Amazon. As we previously reported, Amazon has created its own fulfillment network , which has been regionalized for quick and efficient delivery. Another tailwind in Costco's push for online is the retailer's ability to offer over twice as many SKUs, or stock-keeping units, online than in stores. JPMorgan estimates that Costco offers roughly 3,700 in-store SKUs compared to the tens of thousands found at other big box store locations. As part of its business model, Costco carefully selects its product lines based on certain characteristics like quality and price. By shifting more of its goods out of its warehouse stores to online, JPMorgan said Costco can expand its assortment to "increase its value proposition for the member while protecting the productivity of the club." (Jim Cramer's Charitable Trust is long COST, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. A general view of a Costco Wholesale at Lakeside Retail Park on February 5, 2024 in Grays, United Kingdom. John Keeble | Getty Images