Costco is succeeding despite retail woes

Many retail brands may be struggling, but Costco is thriving thanks to deep discounts and a popular food court.

Posted: Dec 14, 2018 4:54 AM
Updated: Dec 14, 2018 4:54 AM

Retailers are trying to draw holiday shoppers with splashy perks like free shipping, convenient new ways to shop, and mobile checkout in stores.

Costco has eschewed that strategy. It focuses instead on the reliable model that has attracted loyal club members to its no-frills warehouses over the years.

Costco sells just a few thousand hot-selling items — from tires to flat-screen TVs to big jugs of mayonnaise — at cheaper prices than competitors.

Despite Costco's muted approach, it has emerged as a standout in the end-of-year retail crunch by perfecting its simple formula.

During its most recent quarter, Costco's (COST) US sales increased 8.3% compared to the same quarter a year ago. That's higher than competitors like Sam's Club, which posted 5.7% growth, Target (TGT), which posted a 5.1% rise, and Walmart (WMT), which reported growth of 3.4% last quarter.

"Costco didn't engage in any large scale, new strategic initiatives this holiday season," said Timothy Campbell, senior analyst at Kantar Retail. "For Costco, it's all about tactics with constantly new items and finding ways of providing more shopper value."

A trusted retailer

Club members who pony up $60 or $120 for annual subscriptions are flooding in to shop during the holiday rush. Costco reported a 6.8% rise in foot traffic in November.

Members believe that they can land deals at Costco on high-quality holiday staples and gifts they can't find elsewhere.

Costco has staked its reputation on cheaper prices than rivals like Walmart or Target. It pours revenue from annual membership dues back into keeping prices down.

Costco also manages a limited inventory, which gives its merchandising teams a competitive advantage over Walmart and Target. Big-box retailers typically sell more than 100,000 items at superstores, but Costco stocks an average of 3,800 national and Kirkland Signature house-branded products.

"We're able to mark up our goods so little because of the efficiencies that we bring to the table," said Richard Galanti, Costco's veteran chief financial officer. "There's something in terms of putting all your buying power and focus on fewer items and pre-selecting the right items."

A narrower selection at stores also helps shoppers avoid the paradox of choice -- so many options that it's tough to decide.

Costco does the vetting work for customers, said Joseph Feldman, an analyst at Telsey Advisory Group. "There's a high level of trust for customers."

Looming challenges

Costco benefits from the strong economy. High-income shoppers are increasingly willing to spending a larger chunk of their wallets at warehouses, Campbell noted.

Yet Costco could face trouble holding those shoppers against Amazon if the economy turns sour. It has a sizable customer overlap with Amazon, and those customers could decide they don't want to pay for both Prime and a Costco membership.

There are other looming challenges, too.

Costco's low-price model depends on the annual membership funnel. That means the company has to find ways continue attracting new members -- especially Millennials as its core baby boomer shoppers age.

It will also have keep improving its online capabilities to keep up with Amazon and brick-and-mortar rivals that are speeding up their investments.

For now, however, Costco's customers seem to love the club.

In November, Costco reported double-digit increases from last year in categories like sporting goods, electronics, hardware, and appliances, signaling that it was a top destination for big-ticket holiday purchases. Home furnishings, clothes, and small appliances like toasters and blenders grew as well.

Mississippi Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 91935

Reported Deaths: 2780
CountyConfirmedDeaths
Hinds6903153
DeSoto532153
Harrison368771
Jackson334367
Madison318086
Rankin313473
Lee254066
Jones236078
Forrest231069
Washington215671
Lafayette203039
Lauderdale1984123
Bolivar177465
Oktibbeha173749
Lamar156633
Neshoba1524103
Panola140926
Sunflower138543
Lowndes138457
Warren136650
Leflore134380
Pontotoc120416
Pike120148
Monroe117665
Scott115925
Copiah115433
Coahoma110927
Holmes108458
Marshall106714
Grenada104535
Lincoln104453
Yazoo103429
Simpson100142
Union96524
Tate94537
Leake93535
Adams89135
Wayne87121
Pearl River84850
Marion83633
Covington79321
Prentiss78617
Alcorn75310
Newton74722
Itawamba74121
George73913
Tallahatchie73418
Winston71919
Tishomingo65035
Attala63625
Chickasaw63524
Tippah63516
Walthall58925
Clay56216
Hancock55420
Noxubee54015
Jasper53615
Clarke52538
Smith51714
Calhoun50612
Tunica47213
Montgomery45020
Claiborne44916
Lawrence42212
Yalobusha41314
Perry39016
Humphreys36915
Quitman3625
Stone34611
Greene33516
Webster32813
Jefferson Davis32211
Carroll30812
Amite30710
Wilkinson30117
Kemper28515
Sharkey25812
Jefferson2359
Benton2151
Franklin1863
Choctaw1775
Issaquena1033
Unassigned00

Alabama Coronavirus Cases

Confirmed Cases: 128818

Reported Deaths: 2284
CountyConfirmedDeaths
Jefferson18648332
Mobile12949288
Montgomery8560170
Madison736573
Tuscaloosa7015112
Lee558259
Shelby550149
Baldwin502148
Marshall376342
Etowah326344
Calhoun321139
Morgan312925
Houston260621
Elmore247547
DeKalb230119
St. Clair218134
Walker217780
Talladega199925
Limestone191919
Cullman180017
Franklin172728
Dallas172526
Russell16912
Autauga162424
Lauderdale159231
Colbert157224
Escambia154324
Blount150413
Jackson146610
Chilton143325
Dale128042
Covington127027
Coffee12388
Pike11329
Tallapoosa112483
Chambers110642
Clarke104417
Marion91428
Butler90238
Barbour8097
Marengo69319
Winston68512
Lowndes64327
Pickens62214
Bibb6179
Hale60828
Bullock58514
Randolph58512
Lawrence57620
Monroe5708
Washington54513
Geneva5404
Perry5356
Wilcox52911
Cherokee52816
Clay5187
Conecuh51611
Crenshaw51531
Macon46619
Henry4524
Sumter41719
Fayette4128
Choctaw34212
Lamar3302
Cleburne3116
Greene29915
Coosa1573
Out of AL00
Unassigned00
Tupelo
Clear
69° wxIcon
Hi: 81° Lo: 57°
Feels Like: 69°
Columbus
Clear
69° wxIcon
Hi: 83° Lo: 60°
Feels Like: 69°
Oxford
Clear
66° wxIcon
Hi: 80° Lo: 55°
Feels Like: 66°
Starkville
Clear
70° wxIcon
Hi: 80° Lo: 56°
Feels Like: 70°
WTVA Radar
WTVA Temperatures
WTVA Severe Weather