Costco Q3: investing in wages as ecommerce surges ahead

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 04 June 2018

We review Costco’s third quarter results, including its plan to invest in higher starting wages.

Strengthening performance across the business

Costco’s third quarter revenue increased by 12.1% to $32.4bn, with net income up 7.1% to $750m. Comparable store sales, excluding fuel and currency impacts, increased by 10.2%. This was almost twice as strong as its performance in Q2. The retailer’s ecommerce sales were up 36.8%, accelerating from an increase of 27.3% in the previous quarter.

Source: IGD Research

Grocery delivery services growing

Ecommerce continues to be a highlight for Costco. In addition to benefitting to the improvements it has made to search and checkout functionality, the retailer is seeing a strong response to improvements to its ranges and its email marketing campaigns. Personalising and tailoring offers is resonating with members. Its two-day grocery delivery service and its same-day fresh delivery partnership with Instacart also continue to grow, following their launch last October.

Benefitting from new ecommerce programs

The retailer has also started a store pickup service for high-ticket items, including jewellery, laptops and handbags. It has been pleased with this service, with around half of the customers picking up items, also shopping in the club at the same time. It has also seen a major benefit from being able to carry items online throughout the year, compared to eight to 10 weeks previously. In furniture, it has seen its incremental business grow by several hundred million dollars. Given its improved ecommerce capabilities, Costco is also putting new initiatives in place within its clubs to raise awareness of its various digital programs.

Investing in higher wages

The retailer also announced that it is investing some of its income tax savings in higher wages for its associates. Effective later this month, starting wages will be increased by $1 per hour to $14.00 and $14.50, while all other hourly employees will see their wages rise by between $0.25 and $0.50 per hour. The retailer estimates that the annualised cost of this will be $110m to $120m. The retailer will also invest some of the savings in pricing and other activities. In a tightening labour market in the US, these increases will help Costco to continue to be an employer of choice.

Stewart Samuel, Program Director, IGD Canada: based in Canada, Stewart heads up all IGD's research and coverage on Costco. He is also responsible for shaping IGD's research program across North America. Contact Stewart at [email protected] for further insight on the region's markets, channels and retailers. Follow Stewart on Twitter: