We review Costco’s fourth quarter performance and the drivers behind its strong performance.
Costco: the key numbers
- Costco’s fourth quarter total revenue increased by 7.0% to $47.5 bn
- Over the period, comparable store sales, excluding currency and fuel impacts, increased by 5.1%
- Net income increased 5.2% in the quarter to $1.1 bn
- For the full year, total revenue increased by 7.9% to $152.7 bn. Net income over the period increased 16.8% to $3.7 bn
Membership renewal hits a high-point
The final quarter rounded off another excellent year for Costco, delivering some of the strongest sales and profit numbers across the food retail sector. Any major food retailer would be pleased with the growth which Costco is currently achieving, in both sales and profitability. It has developed a resilient model which has found success in each market it has entered. Although it maintains a cautious approach to expansion, it’s a strategy that has served the business well. It continues to see increases in traffic and shopping frequency, underlining the appeal of its offer. Membership renewal rates in Q4 were marginally ahead of the previous quarter and at all-time highs. Globally, the business has almost 54m member households and 99m cardholders.
Source: IGD Research
Ecommerce sales up 26%
The business continues to see significant strength with its ecommerce business, with sales up 21.9% in the quarter and up 23.3% for the full year. In Q4, it saw a strong performance from core categories, including electronics and appliances, with the retailer recently adding new brands to the offer. Its grocery programme continues to grow from a relatively small base. Costco plans on expanding its ecommerce business to Japan and Australia in the year ahead, along with offering a one-day fresh delivery service in Canada. Over time, the retailer plans to roll-out grocery ecommerce to most of its markets.
China business off to a strong start
During the year, the retailer opened 25 new clubs, including its first club in China. This has seen a strong start, with over 20,000 member sign-ups. A second club will open in Shanghai in 2021. Despite the strong success of the first club, Costco will maintain a disciplined approach to growth, developing the capabilities of its teams in-country, enabling a platform for future growth.
Watching the tariffs situation carefully
To date, new US tariffs on goods imported from China, have impacted imports worth around $250bn. Products are currently tariffed at 25%, although a planned increase to 30% is expected later this month. Tariffs on additional products were implemented last month, impacting imports worth $110bn, while a further round of tariffs impacting imports worth $155bn are planned for December. The retailer is working hard to mitigate the impact through bringing in inventory early and sourcing from alternative countries.
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