Startup raises $6.5 million in new funding.
FORTUNE – Last month, Fortune asked whether millennials would kill Costco. The bulk goods retailer’s recent earnings reports have come in lower than expected, raising questions about Costco’s age concentration in an older demographic. Young, urban millennials tend avoid buying houses and own fewer cars – both necessary to enjoy the benefits of a bulk-shopping club. Thus, Costco and its competitor Sam’s Club must evolve to suit the next generation’s lifestyles, or risk decline.
While Costco and Sam’s Club figure that out, a new app called Boxed is happy to fill the void. Today the company announces it has raised $6.5 million in new funding to expand, adding to its prior $1.1 million seed round.
The work of former Zynga developers and executives, Boxed launched last year to bring bulk shopping to mobile. The idea was that the founders could take the customer retention tactics they learned in the mobile gaming world and apply them to mobile commerce, an area that’s behind on optimization. The company even built a mobile platform to allow non-technical employees handle inventory, promotions and targeting within the app.
The difference to consumers is that Boxed doesn’t charge membership fees like Costco’s $55 per year and Sam’s Club’s $45 per year. Beyond that, the mobile ordering and two-to-three-day delivery appeals to customers without cars or customers with small orders.
Founder and CEO Cheieh Huang says he expected the app to be popular with millennials in cities, many of whom don’t drive or don’t live near suburban Costco locations. But Boxed been popular in rural areas simply because it’s convenient, he says.
Since launch, Box has slowly climbed the App Store charts (it has been in the top 100 US Lifestyle Apps for the last month, according to App Annie). The company will not reveal download numbers, except to say it has grown 100% month-over-month and sold hundreds of thousands of items through its app.
Competitors have sprung up, too. Amazon’s Pantry program was initially meant to compete with Costco and Sam’s Club, but has since pivoted to focus on increasing order sizes for its home goods ordering. Pantry boxes cost $5.99 to deliver and can handle up to 45 lbs. – the idea is shoppers will buy more than just a few items when they’re paying for shipping. Likewise, Groupon has launched Groupon Basics, with discount wholesale personal care goods. And Sam’s Club and Costco have their own apps.
But Huang says Boxed has an advantage because of its variety of inventory. Boxed is heavy on green and organic items, many of which are not typically sold at Costco. Once Boxed sees something is popular, it can easily merchandize it using the back-end system it’s ex-gaming developer team built.
Sam’s Club CEO Rosalind Brewer has stressed in recent media interviews that Sam’s Club needs to undergo a digital transformation to meet its goal of doubling revenue from $50 billion to $100 billion. Currently, only 1% of Sam’s Club’s annual sales happen online, through picking up goods they ordered online in the store.
“Sam’s Club has said they think they can get an additional $50 billion in the next give to ten years if they open up online sales of wholesale items,” says Huang. “How much of that $50 billion can we have?”
He noted that the retail behemoth will be stiff competition to his young startup. At least now he’s got the backing of several savvy investors from the mobile and e-commerce worlds: Greycroft Partners led the round, alongside Signia Venture Partners and First Round Capital (partner Josh Kopelman founded Half.com). ENIAC Ventures, Social Starts, BoxGroup, Owen Van Natta (former Facebook COO) and David Ko (former Zynga) participated.