While a number of retailers have struggled or closed stores over the past year, there is one. discretionary consumption a business that will survive and even prosper in a context of increasing competition and economic volatility. Costco Wholesale (NASDAQ: COST) is a smart bet for investors looking for a stable business with a business model that appeals to consumers in booming or depressed economic environments.
Here’s how Costco stock can hold up even in the face of a retail apocalypse.
Costco has a very loyal customer base
One of the factors that differentiates Costco from its competitors is its loyal member base. Membership renewal rates in the US and Canada have held steady at over 90% over the past two quarters. The company has also steadily added new paid cardholders and executive memberships over the past year.
The retailer’s business model is very customer-centric, offering a wide range of popular branded and private label products at competitive prices. The shopping experience resonates well with consumers, and at the end of the first fiscal quarter total paid households stood at 59.1 million, up from 55.8 million in the third quarter of last year which included the start of the pandemic.
Costco will benefit during times of economic uncertainty
In view of the ongoing recession, shoppers are still drawn to stores that offer products at good prices. As people get more anxious about the economy, they will likely look to shop where they can get the best deals. Amid the pandemic, four in ten Americans “are more aware of how they spend their money and believe their finances will not return to normal until the end of 2021 or 2022 and beyond,” according to the firm. McKinsey advice.
The retailer’s most recent monthly results for January 2021 (the four weeks ending January 31) were better than expected with same-store sales up 15.7%. Costco continues to see strength in several categories and has benefited from changes in spending habits due to COVID-19 restrictions and social distancing measures. Household items and wellness products such as health and beauty products were in high demand. “As people spend less on airplanes, travel, hotels and restaurants, they seem to have redirected some of those dollars to categories such as electronics, furniture and mattresses, exercise equipment, household items, kitchen utensils, servants, etc. noted CFO Richard Galanti on the first fiscal quarter call for earnings.
Even after a return to pre-COVID buying models, Costco has the potential to drive revenue growth. First, e-commerce has grown for the business, but it remains a small percentage of total business at around 7% of revenue in the last quarter (and 6% in fiscal 2020). And in his latest income report, e-commerce sales increased 86.4% year over year. Costco acquired Innovel, a delivery and installation company, in March 2020 to expand its e-commerce business. Innovel focuses on larger items such as appliances and furniture, providing Costco with significant fulfillment capabilities as it enjoys sustained sales of household items.
Higher Average Banknotes Will Help Drive Revenue Growth
For December, the average Costco ticket rose 11.4%, the biggest increase since September, according to a UBS analyst. This means that members buy more per visit when they shop.
As some supply chain issues persist due to disruption caused by COVID-19 and increased demand for some products, Galanti said on the earnings call: “If we could buy more. , we would have even higher sales. certain major appliances, certain electronic items, as well as certain household items and small electrical appliances. “As supply chain disruptions ease, Costco will have an easier time sourcing items in demand, potentially increasing sales.
Overall, Costco has gone through various levels of restrictions and social distancing well since last March. Its business is also well positioned as businesses from other retailers suffer from increased competition from giants like Amazon and reduced pedestrian traffic. Even when routines do eventually normalize, the warehouse club’s loyal customer base and its well-organized, value-driven products will help it continue to grow and differentiate it from the competition.
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