Why 'Costco for millennials' Boxed loves selling what Amazon calls 'CRaP'
- Online shopping continues to evolve.
- Amazon is reportedly trying to stop selling items it deems "CRaP" - consumable goods that have thin margins and "can't realize a profit," like bottled water and snacks.
- This could represent an opportunity for other players like Boxed, which employs a different sales model and relies on customers stocking up on this kind of item.
- Boxed has recently started initiatives to work closely with vendors like Coca-Cola as well.
After a rush to sell online, e-commerce players are now rethinking their strategy.
Online shopping is still evolving as customers' behavior changes, and stores have been tweaking free shipping thresholds and item selection to increase either market share or profitability.
"18 months ago - everyone thought, like, maybe selling single things of bottled water is not profitable," Chieh Huang, the CEO of Boxed, the bulk-shopping site sometimes referred to as the "Costco for millennials," recently told Business Insider.
One such tweak: Amazon is looking to move away from selling items it deems "CRaP" - which stands for "can't realize a profit" - and either shift those sales to third-party sellers or work with vendors to change the shape or size of packaged goods, the Wall Street Journal recently reported. These items are usually heavy or bulky, making them difficult or expensive to ship and resulting in slim or even nonexistent margins.
But one man's trash is another man's treasure. Huang says he sees opportunity in "CRaP" for Boxed.
"Might be crap for them, but it's OK for us," Huang said. "We make decent money on very similar stuff."
That's because Boxed has a different model from Amazon, Huang says, and how its customers shop differs, too. With its Prime membership, Amazon has taught customers not to worry about buying only one thing at a time, as all eligible items ship free in two days.
For Boxed, the story is different. The company only sells consumables like toilet paper and packaged foods, and only in bulk. It's that bulk mentality that leads to large average orders.
"Stuff is labeled 'crap' when you ship it single in a box," Huang said.
He noted that the average order size at Boxed is between eight and 10 items. That shipping cost is divided between all of the items being sold, leading to a higher margin overall. Free shipping is only available for orders totaling more than $49.
Boxed's relatively limited selection with relation to categories also affects how people shop the website, keeping them focused on consumables.
"We see you're buying paper towels, would you like to also buy a baseball bat? Well, no not really," Huang said.
Still, Boxed is looking to expand its depth of selection, resulting in partnerships with vendors like Coca-Cola, which is selling an exclusive line of its Smartwater on the website.
"We're working more and more with brands and even retailers," Huang recently told Business Insider's Kate Taylor in an interview. "When you think about shipping bulky stuff - we've become really good at it. It's not like Coca-Cola is going to change its business model because people can't ship bulky stuff."
Amazon also works closely with Coca-Cola, including changing sizes to increase the average selling price per bottle of water and having it ship directly from the vendor to customers, according to the Journal.