Costco Q2: ecommerce growth underpins solid quarter

Date : 08 March 2018

We review Costco’s second quarter results and the impact of its ecommerce programs.

Ecommerce sales up 27.3%

Costco delivered a solid second quarter performance, with total revenue up 10.8% to $33.0bn. Net income over the period increased by 36.1% to $701m. Comparable store sales increased by 5.4%, led by its international markets. Ecommerce sales continue to grow at a rapid pace, up 27.3% in the quarter.

Source: IGD Research

Higher average spend on Instacart

These figures reveal the underlying strength of Costco’s business model, as it continues to deliver results ahead of its peer group. Its recent move into grocery ecommerce is also supporting sales growth, with its Instacart-based delivery service, which is currently available in over 440 US clubs, generating a higher basket spend. The increased scale has provided it with the ability to start undertaking some marketing activities and expects the service to be in all US clubs by the end of the year. The launch of the Instacart program, and its two-day delivery service, are also helping to drive new customers to Costco, particularly in areas where it doesn’t currently have a physical presence.

Moving into store pickup

Although Costco has been reluctant to introduce a store pickup service, partly due to space constraints at its clubs, it has recently launched a buy online, pickup in store service for small-size, big-ticket items. Products offered as part of this service include jewellery, tablets, laptops and handbags. This is an area we expect to see evolve further, with a wider range of items expected to be available by the end of the year. The continued strength of its ecommerce business overall is also requiring the business to invest in additional capacity, with the development of a dedicated fulfilment centre underway in California.

Investing in pricing

While ecommerce development remains a major focus, Costco is not losing sight of the basics. Price investments are a major element of its plan to deliver greater value. It has reduced the number of promotions to invest more deeply, helping to drive stronger sales and profit dollars. On-going price reductions for its Kirkland Signature private brand range are also helping to drive lower prices on national brands as suppliers aim to maintain market share.

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Stewart Samuel, Program Director, IGD Canada: based in Canada, Stewart heads up all of 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: @Stewart_IGD