Costco had another strong quarter through May, reporting sales of US$52.6 billion ($78.8 billion), up 5.5 per cent from the same quarter a year ago. Comparable-store sales were pretty much flat (+0.3 per cent) but adjusted for changes in petrol prices and exchange rate fluctuations, they increased by 3.5 per cent. For international stores excluding Canada, which includes Costco’s 67 warehouse clubs in Asia, adjusted same-stores sales were up 8.4 per cent. For the first nine months of Cos
Costco’s fiscal year (which runs from September to August) adjusted same-store sales for its international clubs are up 9.0 per cent. Company net income for the fiscal year to date is $4.13 billion, a year-over-year increase of 3.8 per cent. Ranked by total sales, Costco now occupies the number three spot among global retailers, with only Walmart and Amazon ahead of it. Costco and Walmart have a lot of differences but also some commonalities. One of them is that Costco is a warehouse club and Walmart’s own warehouse club concept, Sam’s Club, contributes approximately a cool US$90 billion annually to the company’s top line. Costco and Sam’s between them now have annual sales of around US$320 billion, or about 25 per cent more than the GDP of New Zealand. Both are membership concepts, and they both operate warehouses in Asia, with Costco having 32 in Japan, 18 in Korea, 14 in Taiwan and three in China. All of Walmart’s 39 Sam’s Clubs are in China. On top of that, both do brisk e-commerce businesses across the continent and around the world. The club concept is evolving in Asia Warehouse clubs are now a mature concept but most of them in Asia, like German-owned Metro Cash and Carry, like to target BTB customers exclusively. Costco and Sam’s target both BTB and BTC customers and on the BTC side Costco is very definitely going after affluent professionals and families. This has never been a low-income concept. The newest of the Asian warehouse club concepts also imitate the dual BTB and BTC targeting and the affluent demographic. Central Retail’s Tops Club, a 15,000sqm affair unveiled at Central Rama 2 shopping mall in south Bangkok last September, is a good example. Tops Club really does an excellent Costco imitation, adopting some of the latter’s most salient features, including the minimalist, functional interior design with concrete floor and wooden pallets stacked up toward the ceiling. The bulk packaging is also classic Costco. And if you still aren’t convinced of the similarity, look for Kirkland Signature-branded products, which is Costco’s private label. Shopping at Tops Club also requires membership but the fee is likely to be more like gravy than a key component of revenue needed to drive profit, as it is with Costco. Tops Club diverges from Costco quite sharply by selling at a higher markup and relying on imported, exclusive high-end products to drive sales, as opposed to keeping prices low on staple items. This also differentiates Tops Club from Siam Makro, owned by Thailand’s Charoen Pokphand Group (CPG), which operates cash-and-carry warehouses around Thailand selling bulk items at sharp prices. Makro accepts both business customers and individual consumers but doesn’t require membership, so it is not technically a club, even though its stores bear a strong resemblance to one. Retail’s no-BS concept What makes Costco’s 853 worldwide stores resonate so well among customers, year in and year out, prising $231 billion in annual revenues out of their wallets? It’s a concept that rolls value and entertainment into one, with the latter consisting not of the usual technological or design bells and whistles, but rather the treasure hunt: about 25 percent of its merchandise is rotational, meaning that it’s a one-off bargain and you need to snatch it up now because it won’t be here next time you come. Prices are low because Costco limits the number of SKUs to about 3,500 and buys in huge volumes to get the best prices. It sells at a gross margin of not much more than 10 per cent, but bulks up its profit margin with its membership fees, which account for about 2 per cent of revenues. (That might not sound like much but when you are doing US$231 billion worth of business, it turns out to be more than a bit of loose change.) Refreshing humility Costco’s success relies on a simple formula: give customers what they want. We know this not just because its sales continue to rise but because its membership renewal rate is 90 percent. Costco (like other ‘treasure hunt’ retailers such as TJX, Aldi and Trader Joe’s) are a marketer’s graveyard because their business models don’t allow them the luxury of a big marketing budget to promote products or cover up deficiencies. Indeed, their business models repose partly on not marketing at all. Retail marketing, as we have come to know it, is now routinely littered with clichés that are intended to ‘control the message’ and ensure that nothing genuinely interesting about a product or company gets out. This is counterintuitive because we ordinarily think about marketing as a means of getting the word out about something. That long ago stopped being what it does. If a lot of the most common marketing phrases were to be banned forever, it might just result in the creation of more informative messaging: words like ‘reinvent’, ‘reimagine’, ‘price leader’, ‘immersive’, ‘interact with the brand’, ‘innovative’, ‘amaze the customer’, ‘delight the customer’, ‘revolutionise’, ‘customercentric’ and so on, all of which basically say nothing, would quietly vanish from the lexicon. Of course that will not happen, but to Costco it doesn’t matter because the company spends hardly anything on marketing (it mails a flyer to its members a couple of times a year) and its other operating costs are minimised by ruthless efficiency and the simplicity of its format. Given the cost of the large sites required for a warehouse club, the number of clubs will not increase at a rapid rate but there is no question about the long-term durability of the format, nor of Costco itself, which may just about be retail’s greatest show – or at least the best show with the least hype – on earth. The company will report results for the fourth quarter and whole of fiscal year 2023 on 26 September.