Boxed is not a Costco-killer, it’s a Costco reseller

Photo Credit: StockMonkeys.com.

Photo Credit: StockMonkeys.com.

Will Costco be killed by mobile?

Maybe, but it won’t be by Boxed, a mobile app that delivers large quantities of consumer packaged goods to your front door.

GeekWire has learned that the start-up is not the threat it is being made out to be — rather, it is generating additional revenue for the Issaquah, Wash.-based warehouse club. A Costco spokesman said Boxed is one of many experiments it is trying in mobile, and is letting Boxed buy its merchandise and resell it to its customers.

Yesterday, Boxed said it raised $6.5 million to continue building out its mobile app that promises to deliver bulk goods to your door within two days of placing the order. Shipping costs are about $6.99, unless you hit a minimum order threshold. It operates anywhere in the continental U.S. without membership fees.

Following the fundraising news, many publications jumped to the conclusion that the mobile app was the end for Costco. For instance, Forbes called Boxed, the “Costco of Mobile Apps,” Fast Company asked if Boxed was “Costco’s Worst Nightmare?”, and the New York Daily News characterized the app as being “Costco in your pocket,” which, perhaps, is the most accurate billing of all.

boxed itemsAt first, Boxed CEO Chieh Huang was reluctant to talk about his relationship with Costco, saying the company was not officially connected to the company, “But we have a great relationship and often meet to talk about what we’re generally seeing in the market.”

When pushed further on the matter, he said he was surprised Costco would disclose that. “We generally do not talk about what we’re working on with them or anyone else in the industry,” he added.

To be sure, it is early days. It is unclear how much merchandise Costco is reselling to Boxed, and obviously in the future, the two could either become more or less aligned.

The Manhattan-based company was founded by Huang, who grew up shopping at warehouse clubs in the suburbs of New York City. But once he moved in to Manhattan, shopping in bulk became impractical because of the distance to the stores and lack of transportation for hauling big items. Huang, and three of the company’s other founders, started the company after leaving Zynga, which purchased their previous company, Astro Ape Studios.

Huang told Forbes that they are trying to replicate the experience of going to Costco and the fun of exploring new items and scoring big bargains.

Costco does have a mobile app, but right now it’s focused on selling goods and giving away coupons — not delivery. Costco is experimenting with a number of ways to get goods to consumer, and is also working with Google’s same-day shopping service that delivers items from brick and mortar stores in Los Angeles, San Francisco and Manhattan. It’s also working with Instacart, the San Francisco-based grocery delivery company founded by former Amazon engineer Apoorva Mehta.

The lead investors in the Boxed’s first round are Greycroft Partners, First Round Capital and Signia Venture Partners, with participation from ENIAC Ventures, Social Starts, BoxGroup, and a handful of former Zynga employees, including Owen Van Natta and David Ko.

  • Slaggggg

    Seems like a questionable strategy for Costco … get disintermediated from your customers, let Boxed own the customer relationship. Once Boxed gets big enough, they’ll form their own supplier relationships and cut you out.