What long tail?

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Ginnie Roeglin couldn't care less about the so-called long tail.

As senior VP of e-commerce at Costco, she oversees a dot-com business that sells the fewest number of SKUs-just 3,500-among online retailers.

Wal-Mart.com's SKUs top 1 million. And there's the Amazon.com juggernaut with 10 million. Even Sears.com offers 150,000.

"We will never have hundreds of thousands of SKUs," said Ms. Roeglin. "We have the same discipline online as we do in the warehouse, and you cannot really be the best at what you are doing if you have too much to manage."

It's a counterintuitive strategy and not the only one at Costco.com, which ranked 27th among online retailers in 2005 with sales of $534 million, up 42% over 2004, and is expected to top $1 billion this year.

"Others think of it as virtual inventory, so what's the harm, just throw it on the website," said Ms. Roeglin of the strategy of keeping millions of SKUs.

Costco has won concession from suppliers on shipping and inventory management. Nearly 70% of the items sold online are shipped directly from the supplier to the customer. In fact, the online business has just one warehouse depot with about 80,000 square feet of space. Amazon, by contrast, devotes 10.2 million square feet of space to inventory, according to the company's annual report.

And that's not the only aspect of the Costco.com business model that flies in the face of the conventional e-commerce wisdom. Unlike Target.com, which outsources much of its online operations to Amazon.com, the Costco operation is handled entirely in-house by a staff of 185. And despite competitors Target.com and Wal-Mart.com shifting millions into online advertising, Costco isn't following suit.

Instead of relying on online ads to drive business, Costco is planning an in-store push to the chain's 36 million cardholders and in-store kiosks to lure the 2 million visitors daily at its 471 stores. A recent survey showed 90% of the chain's customers shop online, but only 5% have shopped on Costco.com.
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