Costco UK retains growth momentum

Date : 02 June 2016

From accounts filed with Companies House, Costco UK has reported full year sales of £1,904m for the year ending 30 August 2015.  This represents annual growth of 7.1%, continuing the wholesaler's run of years at over 6%.  Gross profit was up by 14.2%, with gross margin improving to 3.0%.  Strong growth has continued into 2015/16 with Costco has indicating that Q1 (to 22 November 2015) in the UK saw sales well ahead of the previous year.

New space added half of 2015 growth

Roughly half Costco's growth over the year came from its new depots at Hayes (opened in 2014/15) and Sunbury.  However, like-for-like performance was also robust, boosted both by the addition of the company's second petrol filling station at Oldham, as well as the successful turnaround of a number of historically under-performing sites.  The product departments driving growth were food and sundries; and tobacco, grocery, confectionery and sundries are pulled out as being particularly strong.  Categories such as tobacco and confectionery have notably gained sales from customers in the independent retail sector, attracted by the cash-back benefits of Executive Membership and the Costco American Express Card.

Online business growing at speed, but small part of total

Costco's separate online business, designed to complement its core warehouse offer saw sales up to £46m in the year, showing an increase of 57.0% on 2014/15.  As most lines available online are not available in the warehouses, most of this growth is incremental; however, Costco is experiencing some cannibalisation of its warehouse sales in technology categories such as cameras, televisions and tablets.  Delivery of online is mostly direct from suppliers, though a balance of items are delivered from Costco's own distribution site.

Warehouse development remains central to future growth

Costco still expects to drive its top line growth in the UK through the ongoing development of one to two new warehouse sites a year.  Costco now believes the total potential for sites in the UK to be 35-40, which is slightly below its established aspiration of 40-50.  With 27 sites now trading, the business has headroom to continue new openings (depending on the pace) for a further 5-10 years.  To sustain this expansion Costco has now transferred its central distribution to a new 380,000 sq ft site at Crick in Northamptonshire, providing additional capacity for the future.  In the current year Costco has already opened its third petrol filling station, at Bristol, and a fourth will soon follow at Sheffield; while a new warehouse is currently in development at Wembley, with others in the planning stages.

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