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What's up with Costco?

Written by RetailWire Staff
[avatar user="amcclain@retailwire.com" size="100" align="left" /] Costco is a bit of a puzzle at the moment. A best-in-class retailer by most standards, they are noteworthy for legions of devoted shoppers. But earnings per share declined year over year in its most recent first quarter, falling short of analysts' expectations. Factors that hurt Costco included the strong dollar, a non-recurring legal issue, stock compensation which will diminish, and a decline in credit card signups to zero in expectation of the switch away from American Express to a new VISA credit card from Citigroup early next year. (Sam's Club is now accepting American Express cards and advertising that fact.) Membership sign-ups were up 7 percent for the quarter to a total in market of 45.6 million (82.7 million if you include extra cards), although membership fees fell short of analysts' estimates. Costco opened 23 new units in fiscal 2015 and plans for 32 new units in fiscal 2016, which would represent approximately 5 percent growth. According to Fortune, Costco has been able to defy the trend towards online shopping, with only three percent of its sales coming from e-commerce. CFO Richard Galanti says Costco has grown sales and cut long-term costs such as freight, vendor pricing and packaging, while passing 80 percent to 90 percent of the savings back to customers. Fortune also noted that annual membership renewal is 91 percent, which is a record high. Retail Dive highlighted the opinion of Deutsche Bank retail analyst Paul Trussell that Costco is now "Amazon-proof" due to its membership model and physical store advantage. Members may go with a list, but tend to pick up a few impulse purchases each as well, he says. Potential bumps in the road include competition from Amazon Prime, which makes it easy to get most items delivered to one's doorstep in two to three days. Also, aging Baby Boomers may not be as eager to push carts laden with heavy, bulky items around large warehouse stores. And with empty nests, they may no longer be in the market for three pound cans of nuts.

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