Why Costco is still winning

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Why Costco is still winning

By Gina Acosta - 10/06/2017

Accelerating online efforts and membership fee perks are helping Costco ward off the impacts of quickly shifting trends in the food retail industry.

Ahead of what promises to be the most digital holiday season ever, Costco's fiscal fourth-quarter report showed that the Seattle-based warehouse club's business model is staying steady against the threats of Amazon and changing shopping patterns. As a matter of fact, Costco's business strategy showed its power in the fourth quarter especially when it came to digital sales. 

Same store sales gains in e-commerce were 21% for the fourth quarter, and Costco finished the full fiscal year with 13% growth in digital comps. For a company that has been accused of being slow to adapt to e-commerce, the trajectory is impressive.

"We improved search, streamlined the checkout process, improved our members' ability to track their orders and automated much of the returns process and we also improved our online merchandising efforts by adding high end and well-known brand names," Costco CFO Richard Galanti said. "We're leveraging our global brick and mortar buying power to expand and improve our online value proposition by lowering prices even further. And we continue to build awareness on our site with Costco members through warehouse signage, special offers and targeted emails and expect us to discuss some of those activities more in 2018."

Adding more momentum to its digital efforts, this week Costco started offering two-day delivery on dry grocery from its website and expanded a fresh-food delivery partnership with Instacart. Both services let Costco members buy food online at lower prices than available under previous options, Galanti said.

"We feel that all these efforts, which are ongoing have resulted in increased traffic in sales, both online and in-store during the past couple of quarters in particular. Looking forward, we’ll continue to expand these types of activities to drive our businesses. You'll hear more from us in the coming quarters about driving online sales with ongoing site improvements, improved online marketing activities and of course along with great products and services at fantastic prices. That's what we do," Galanti added.

For the fourth quarter ended Sept. 3, Costco's total revenue rose 16% to $42.3 billion. Net income was higher by 18%, coming in at $919 million. Same store sales rose more than 6%, with a 6.5% rise in the U.S. market. Internationally, results were slightly weaker, with 4.9% comps growth in Canada and a 5.6% higher showing in the other international category. 

Costco opened its first warehouse in France this year, outside Paris. On a recent visit, Parisians shopped alongside tourists. They filled their carts with giant bottles of olive oil and club-sized boxes of individually wrapped crepes.

Indeed, shoppers all over the world seem to be responding well not just to the assortment at Costco but also to the perks of being a Costco member.

This month U.S. Costco members in the market for a new vehicle have a new round of incentives to consider as they head into the final car-buying months of 2017. Specifically, shoppers interested in a General Motors vehicle will discover Supplier Pricing on nearly every car—including the Chevrolet Bolt EV electric car and Chevrolet Volt plug-in hybrid. Buyers can combine that Supplier Pricing from Costco with nearly all other incentives available on a particular vehicle, including leasing and financing rebates. 

During the fourth quarter, membership-fee revenue at Costco increased 13% to $943 million, although some of that can be attributed to a fee increase rolled out this year.

Costco ended its 2017 fiscal year with 741 warehouses in operation, including 514 in the United States and Puerto Rico, 97 in Canada, 37 in Mexico, 28 in the United Kingdom, 26 in Japan, 13 in Korea, 13 in Taiwan, nine in Australia, two in Spain, one in France and one in Iceland. Costco also operates e-commerce web sites in the U.S., Canada, the United Kingdom, Mexico, Korea and Taiwan.