Can Boxed create a mobile commerce version of Costco and Sam's Club?

Online retail startup Boxed is bringing club shopping to mobile. Through curated content and no membership fees, Boxed is looking to take on the big name warehouse clubs.

Image: Boxed

Bulk shopping at warehouse stores such as Costco or Sam's Club can be a polarizing experience, especially for young people. For some folks, a $50 membership is worth every penny if it means they can get good deals on bulk items; for others it can be difficult to justify for a few select things.

Online retail startup Boxed launched in August 2013 to make the experience easier and cheaper. The Boxed team set out to bring bulk shopping to mobile, allowing users to select items from a curated list and have them delivered to their door in a few days. Also, they've set out to do this without charging a membership fee. According to Chieh Huang, CEO and co-founder of Boxed, it's about more than just bulk shopping.

"We are tying to provide an alternative for people who don't have the time or the means to go to a Costco or BJ's, and we're working to provide the best possible solution for them," Huang said. "The bigger vision of what we're trying to disrupt is actually mobile commerce as a whole. There are an incredible number of massive retailers out there who haven't figured out how to build a mobile product fit for a modern audience, let alone how to engage with that consumer. As we've seen with countless other industries, there will be a tidal shift to mobile -- the question is when, not if."

The emergence and seeming popularity of Boxed represents a problem that has been faced by the retail industry. People want deals, but they don't want to go through the hassle of getting them. Sam Club even mentioned that it was shifting its focus to mobile to drive up customer engagement. When it comes to the battle for mobile, Boxed is betting on curation and the ability to capitalize on mobile discovery.

Image: Boxed

"When we looked at Boxed, one of the most interesting stats was that 80% of Boxed users do not use the search function as part of the app. What that meant to us, given the high average order value that people had, is that they really cracked something that has been broken in mobile, which is a true shopping discovery experience," said Zaw Thet, of Signia Venture Partners, one of the investors in Boxed.

According to Huang, Boxed was started to address a problem that had been faced by several people on the team, wanting warehouse club deals without the inconvenience. Huang recalls when he moved to New York he would trek to Costco, wait in long lines just for a giant package of toilet paper, and then fight traffic to get everything back home. Huang said he wanted to create an "alternative for people without the time, means or patience to get to a warehouse club."

Most of the members of the Boxed team used to work in mobile gaming, so much of their focus revolves around user experience. That plays out in the simple design of the mobile app. Simplicity and ease-of-use are key, but so is creating an experience that is entertaining and discovery-oriented. Since so many Boxed customers are browsing rather than searching for products, that creates a unique opportunity because Boxed differentiates itself based on its smaller curated list of products.

One of the interesting things about Boxed is its insistence on maintaining a physical inventory. Many online, e-commerce companies operate through partnerships while Boxed ships out of its own warehouses. As a company with a background primarily in mobile gaming, the logistics and supply chain aspects offer new opportunities for the company, especially as it grows.

"It was an opportunity because they are starting to grow so fast that they have to continually build new warehouse space to be able to handle that," Thet said. "It's an opportunity and challenge for them to innovate. They've done a fantastic job in a limited amount of time with a limited amount of resources."

Boxed offers around 800 unique items to their customers. While 800 may sound like a lot of items, consider that the giants like Costco and Sam's Club offer thousand of items to consumers. This is where the curation comes in as Boxed sets out to choose the most popular items or speciality products such as organic items and family-friendly products.

"For us, the most challenging part of building the business has been maintaining a high level of curation for our customers," Huang said. "Much like traditional brick and mortar warehouse clubs, we are a discovery channel where customers come in to find new and exciting items to try. So, putting the best items out there in a fast turnover environment definitely keeps our merchandisers up at night."

The goal here is convenience. Boxed has seen major growth among young, urban customers; but, they have also seen many orders coming from rural areas as well. The Boxed model is definitely a better lifestyle fit for the next-generation consumer. And, that model has attracted some investment attention as well.

According to Huang, Boxed has raised $8 million in funding since it launched in August 2013 including its $6.5M Series A in May 2014. Boxed investors include: Greycroft Partners, First Round Capital, Signia Venture Partners, Bessemer Venture Partners, ENIAC Ventures, Social Starts, BoxGroup, Owen Van Natta, David Ko, and Basset Investment Group.

It's obvious that Boxed is taking on some pretty stiff competition, but what remains to be seen is whether or not these bulk goods behemoths will be able agile enough to compete.

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