Consumers, Retailers crowed Costco’s Low-price niche

Since opening its first warehouse store in Seattle 40 years ago, Costco has never wavered from his mission “Continuously provide our members with quality goods and services at the lowest possible prices.”

But while that mantra and ethos has served the warehouse giant well for decades, its corner of the low-price market has grown increasingly competitive in the past year, as runaway inflation and economic uncertainty have caused both cash-strapped consumers like overstocked retail rivals rush to buy your space

Whether it’s increasingly diverse and agile grocery stores trying to outdo them, big box stores and e-commerce players promising faster and more profit, traditional mass-market brands getting more aggressive with promotions, or attacking well Armed with dollar stores and discount stores, Costco’s model, mission and value proposition are under fire.

“In recent years, given the scarcity of electronics, … the industry saw much less promotional activity offered by retailers,” Costco’s chief financial officer said. Ricardo Galanti told investors about the company’s fiscal fourth quarter and full year Profits call Thursday night (September 22). “There was no need to do that, but we are starting to see some of those promotional activities come back.”

While digital details for the quarter and full year are scant, Galanti said e-commerce sales were up 8.4% in the quarter, excluding foreign exchange, highlighting particular strength in tires, turf, yard and garden, prescription pharmacy, and health and beauty aids.

Ultimately, one of the best measures of Costco’s ability to communicate its value proposition to new and existing customers can be seen in its membership metrics and the number of customers willing to pay between $60 and $120 per year for the right to shop at its more than 800 warehouse stores.

According to Galanti, membership fee revenue was $1.3 billion, an increase of $93 million or 7.5% in the fourth quarter, with the renewal rate reaching an all-time high of 92.6% in the United States and Canada, and 90.4% worldwide.

The most lucrative executive memberships totaled 29.1 million at the end of the fourth quarter, “an increase of 1.2 million or 74,000 per week” from the end of the third quarter, Galanti said, noting that these members have higher spending and influence, and now account for more than 44% of Costco members and nearly 72% of worldwide sales.

As for the simmering speculation about when Costco’s annual membership fees might make their own inflationary adjustment, Galanti offered few new ideas.

“There are no specific plans regarding a fee increase at this time,” he said, but noted that Costco has historically increased membership fees every 5.5 years, with 2023 marking five years since the last fee increase.

In July, the CEO of Costco craig jelinek said it was “not the right time” for the retailer to consider price increases in membership fees.

He said the strength of American consumers “wasn’t too bad” when faced with inflation, an increasingly tight job market, ongoing supply chain problems and the potential for a looming economic downturn, which could generate “enormous amounts of inventory” at Costco stores.

To keep pace with the faster delivery race among major retailers, Galanti said Thursday that Costco is continuing to transition from supplier direct shipping to direct shipping from our own inventory, particularly when it comes to large, bulky items. .

“Overall, this reduces the cost of merchandise, improves delivery times and service levels to our members,” he said.

And finally, another barometer of growth that investors and analysts are following is the continued expansion of Costco’s store count, which saw the retailer open 23 new locations last year and nine in the past three months, including five stores in the US. USA and two in Canada. and one in Korea in Japan.

Next year, Galanti said, Costco hopes to pick up that pace a bit, planning to open 25 new stores, of which 15 will be in the U.S. and another 10 will be distributed internationally, including first-time locations in New Zealand and New Zealand. Sweden, and its third and fourth locations in China.

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