Costco talks holiday plans, ecommerce development and further expansion as sales break through $160bn

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 25 September 2020

We review Costco’s fourth quarter and full year sales, including the outlook for the holiday season, ecommerce development and further expansion.

Key numbers

  • Q4 net sales increased 12.5% to $52.3bn
  • Comparable store sales increased 14.1%, ex-fuel and currency impacts; 13.6% in the US, 12.6% in Canada and 18.8% in other international markets
  • Comparable ecommerce sales increased 91.3%
  • Net income in the quarter increased 26.6% to $1.4bn
  • Full year net sales increased 9.3% to $163.2bn, with membership fees up 5.6% to $3.5bn
  • Net income for the full year increased 9.4% to $4.0bn

Traffic trends improving

Costco finished the year strong, with its performance underpinned by the COVID-19 pandemic. It benefitted significantly from the shift to eating more at home and educating and working from home. Although traffic was down 1.2% globally, the trend is improving, including in the US where it was up 1.2%. Average basket size was up 12.7%.

Safe place to shop

Its non-food business gained as consumers diverted spend from travel and holidays into items for their homes, electronics, outdoor furniture and sporting goods. The performance in many categories was stronger than expected and could have been even better without some supply challenges. The retailer expects the elevated demand to continue, with many consumers viewing Costco as a safe place to shop due to its mandatory face mask policy, larger clubs and wide aisles.

Source: IGD Research

Cautious approach to Halloween and Christmas

In terms of Halloween and Christmas, the retailer is confident that it will continue to see solid sales growth. However, it has adopted a more cautious approach to seasonal ranges, with Halloween costumer orders around 20% lower than last year. For both events, it has also focused on more basic ranges, expecting more celebrating to be undertaken at home this year.

Expects to retain new grocery ecommerce customers

The retailer saw a significant acceleration in ecommerce during the year, in line with the wider industry. Sales increased 50.1% for the full year, excluding its same-day grocery programme operated in partnership with Instacart. Sales were up over 90% in the quarter and by around 120%, including its same-day programme. Its non-food business benefitted from the acquisition of Innovel Solutions, now rebranded as Costco Logistics, enabling it to expand deliveries of big and bulky items. Costco expects to retain many of the new customers using its same-day service for groceries as the pandemic eases.

Club pickup plans likely to be accelerated

Despite the strong ecommerce growth, it remains hesitant on introducing a store pickup option beyond the programme it offers for smaller, high value items. The senior leadership continues to have concerns over the economics of the model, although the stance has shifted to a “not now” rather than “never.” However, its competitors, Sam’s Club and BJ’s Wholesale Club continue to expand their programmes, with curbside pickup an important service for their members. The pandemic is likely to accelerate Costco’s progress in this area given the pace of change in the channel.

Expansion plans curtailed by pandemic

Over the course of the year, the retailer opened 16 new clubs, including three relocations. Several planned openings were delayed due to the pandemic. It expects to open 20 new clubs in its new financial year, and a run-rate of 20-25 new clubs annually through to 2025. This year it will open its second club in France and plans are in place for its second and third outlets in China in 2022. Although the retailer could increase the pace of expansion, especially in the US, it believes that its conservative approach is a key part of its model, enabling it to maintain a strong focus on execution and drive the return on investment.

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