AmEx and Boxed Wholesale make a play for millennials
March 25, 2016 09:16 AM
(Bloomberg)—American Express Co. took a big hit last year when it failed to extend a lucrative partnership with Costco Wholesale Corp. Now it’s hopping in bed with a would-be Costco killer.
Boxed Wholesale—a phone app version of Costco—this week rolled out AmEx’s Express Checkout, which lets customers pay by entering an AmEx user name and password. AmEx cardholders also earn extra rewards when shopping on Boxed and are eligible for free samples just as they were at Costco, No. 11 in the Internet Retailer 2015 Top 500 Guide.
The partnership won’t help American Express offset the arrangement with Costco, a co-branding relationship that once accounted for 11 million—or 10%—of AmEx cards in circulation. But the payments giant said in a statement that the deal will make online shopping easier for millennial card holders, who are already shopping on Boxed.
“They see Boxed like they saw Costco 20 years ago,” Boxed CEO Chieh Huang said of American Express.
Since its founding three years ago in Huang’s garage, Boxed has built a business selling Costco-sized packages of paper towels and trash bags, cereals and pastas, light bulbs and lunchbox snacks to shoppers aged 25 to 44. Huang says he’s trying to persuade younger shoppers, especially ones starting to have kids and buy homes, to buy in bulk, the way their parents did at warehouse stores like Sam’s Club and Costco.
While Amazon.com Inc. focuses on selling everything, Boxed emphasizes simplicity—offering only 1,000 products so shoppers can quickly find what they need, place an order and get on with their day. More than 70% of all transactions happen on mobile devices.
“People will still shop on Amazon, and they will stock up on Boxed,” said Huang, adding that the average order is 10 items and more than $100.
The partnership with AmEx gives Boxed exposure to 118 million card members globally, including U.S. customers who spent an average of $13,600 on their cards in 2015. AmEx’s corporate accounts can help Boxed attract more business clients and even help Boxed expand beyond the U.S. in the future.
Boxed is already working on more deals with businesses, selling bottled water to boutique hotels, packaged foods to vending machine operators and bodegas, and snack boxes to Delta Air Lines Inc. for passengers whose flights are delayed, Huang said.
After raising $100 million in January, Boxed is moving into bigger warehouses in New Jersey, Atlanta and Las Vegas and will soon open a fourth facility in Dallas. The company is also relocating its New York City headquarters to a space in Soho that’s four times bigger than its current offices.
Boxed was an attractive investment because it’s wooing smartphone shoppers who are starting families and buying in bulk, said Jeff Richards, a managing partner at GGV Capital, which participated in the $100 million round and an earlier round. The average Boxed customer spends more than $1,000 a year with the company, much more than a typical e-commerce startup, he said.
“The consumer packaged goods industry is still one where people mostly go to the store once a week to stock up,” he said. “We think that’s going to change—not overnight—but in the next five to 10 years. Today’s generation of shoppers doesn’t want to spend their weekends in Costco.”
AmEx is betting on it.