After the announcement of PriceSmart’s Q2 results we take a more detailed look at the warehouse club business that is building a growing presence across Central America, Colombia and the Caribbean.
The numbers in brief
Sales doubled since 2010 to USD2.8bn last year
Sales increased 2.7% to USD1,4588.4m in the first six months of the fiscal year 2017
Sales increased 1.8% to $772.3 million from $759.0 million in Q2 2016
Sales increased 2.9% for the first month of Q3, March
Geographically, a diversely spread business
PriceSmart currently serves over 1m members, in 39 stores, across 12 countries in Central America and the Caribbean. It is the third largest warehouse club channel in Latin America, after Walmart and Costco. It has its strongest presence in Colombia (seven stores), Costa Rica (six stores) and Panama (five stores).
PriceSmart raised its profile in 2011 by expanding into an increasingly prosperous Columbia, which has since become its largest market by store count, with seven stores in total. Columbia has experienced a transformation in the last decade, becoming a more attractive place to do business. And while Costco and Sam’s Club are both strong in Mexico, neither are present in Columbia, a market often seen as having similarities with Colombia. The population of Colombia is larger than all the other markets PriceSmart operates in combined, and 30% are part of the growing middle class, this gives it a large potential customer base.
Suffering the impact of currency shifts in Colombia
There are however challenges to the rapid expansion PriceSmart planned for in Columbia. The ongoing currency volatility and devaluation of the Colombian peso has affected PriceSmart. It has seen price increases on imported goods which decreased their demand. Sales and membership also translates to less USD, shrinking the impact of sales growth.
The fall in oil prices has further increased difficulties to importing and raised costs.
Taking action to address this
PriceSmart plans to boost local sourcing to make it less reliant on imported goods, therefore lessening the effects of the currency volatility. It has also recognised that it will have to accept lower margins during this period. The business is also looking at other ways to increase its productivity and efficiency, such as the opening of a new distribution centre in Miami.
Membership growth continues (outside Colombia
There are plans for a new warehouse club to be opened in Costa Rica late in 2017. This is currently the only planned opening. For the short term, PriceSmart is not expected to open any other new stores or enter any new markets. Instead will be focusing upon its existing estate. By adding new products, ranges and increased services PriceSmart is hoping to boost same store sales.
The model holds much potential for further growth
Despite recent downturn we expect the business to continue to perform well. PriceSmart has a strong platform for further development based upon their brand name being synonymous with membership club stores. Success has been driven by the increase in demand for cash and carry formats as both consumers and businesses alike use them to purchase.