Costco: strategic update

Date : 11 December 2014

As Costco announces strong Q1 2015 results, we look at how the retailer continues to develop its growth strategy in store expansion, online and through new engagement initiatives to drive traffic.

Total sales up 7.4%

Costco's net sales were up 7.4% to $26.3bn in Q1. Net income increased by 17% to US$486m for the quarter. Comparable sales, excluding negative impacts from gasoline deflation and foreign exchange, were up by an impressive 7%, with both US and international comp sales growing by 7% on this basis. 

Costco continues to benefit from strong new member sign up. New membership in the quarter increased by 4%, with good growth in USA and Canada. Costco opened eight new stores during Q1 including six in the USA, and one in Australia, bringing its total in that country to seven.

Three key priorities:

1. Growing stores both at home and abroad

In the current financial year, Costco plans to open 31 new locations. The majority of these, 18 will be in the US, three each in Japan and Mexico, two each in Australia and Korea, and one each in Canada, UK and Taiwan. Costco hopes to open a second location in Spain in the second half of 2016. It will continue to try to open its first store in France. 

Regarding entry to China, Richard A. Galanti, EVP and CFO of Costco explained that it plans to wait for others to enter the market first, and then Costco will follow.

2.Investing in ecommerce

Costco now operates online in four countries: the US, Canada, UK and Mexico, with ecommerce sales up 20% in the quarter.  It continues to partner with Google Express, which is offered in six markets in the US including Los Angeles, New York, Chicago, Washington DC and Boston. Costco also partners with Instacart in 13 US locations. The retailer has recently entered China’s ecommerce market in partnership with Alibaba to develop its online presence, shipping products from its Taiwan base. Click here to read more about this strategic move.

3. Continuing to test new initiatives to drive traffic

Costco is committed to trying new ideas to drive sales and new member growth. Over eight days it ran a nationwide promotion in the US for new members on Living Social, including free products and a coupon to save money online. A key aim of this promotion was to reach younger shoppers, particularly millennials. We're expecting to see more initiatives of this type in the rest of 2015 as Costco looks to maintain its strong growth momentum in the US and internationally.  

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