hanged, or at least it has been downplayed. Ron Millerchip, the US-based company’s CFO, conceded to investors recently that there was a point when Costco thought it was close to saturation in the US: “I think it’s only surprising inasmuch as I know we’ve talked previously about – we thought that we would potentially run out of runway for new warehouses in the US.” Yet, of the 17 new warehouse stores opened in this fiscal year so far, all but two were in the US and Canada. For the remainder of the year, the focus of store openings will continue to be in the US, with nine of 12 new clubs opening there, and the remaining three earmarked for Japan (two) and Korea. Despite the continued bias of openings toward North America, and the US in particular, in the latest quarter nearly 16 per cent of company sales emanated from outside North America, which is almost identical to what it was a year ago. In other words, US store productivity has declined sharply for Costco warehouses opened in more recent years, which may be partly attributed to cannibalisation of sales as the trade areas overlap more. CEO Ron Vachris is happy for that to happen. “I’d have to say that we probably opened eight this year that cannibalised other buildings. We had one in Toronto that cannibalised four buildings around it, but they’ve built back their sales within six months.” The average Costco store generated slightly more than US$250 million in net sales last year, but stores that were opened before 2014 averaged nearly US$270 million. Due partly to increasing congestion within the store fleet, stores opened since 2019 haven’t gone above an average of US$200 million. Still, Millerchip thinks Costco can continue opening 25-30 warehouses worldwide annually for the foreseeable future. And he believes more than half will be in the US. Costco now operates 878 member warehouses, of which 165 are outside the US and Canada. This includes an Asian contingent of 33 stores in Japan, 18 in Korea, 14 in Taiwan and seven in China, one of which only just opened in Nanjing. Prospects in Asia Prospects for store openings in Asia would seem to be huge, particularly considering the membership-based retail/wholesale concept is still not deeply embedded into the culture. What is there already hasn’t exactly set the world on fire, despite a number of companies having given the concept a shake. Germany’s Metro Cash-and-Carry tried it in China, Japan, India and Vietnam, but ultimately threw in the towel. Thailand’s Central Retail is expanding its Go Wholesale fleet after launching in the last quarter of 2023 with stores in Bangkok, Chiang Mai, Chonburi and Pattaya. The jury is still out on that launch; however, Central’s earlier foray into a member-based concept, Tops Club, which opened with great fanfare in September 2022 in Bangkok, closed with less than a whimper exactly one year later. CP Axtra’s Makro is a Costco look-alike, but although the no-frills warehouse format and bulk-merchandising strategy are familiarly Costco-like, it is not membership-based. So head-to-head competition for Costco across Asia is still limited. Membership fee increase still up in the air Membership fees are essentially a juicer for gross margin, allowing the company to invest in prices and maintain a slender gross margin percentage of sales of no more than 10-15 per cent. Amid rising speculation about an imminent increase, the annual membership fee hasn’t budged in more than six years. Like his predecessor Richard Galanti, the new CFO Millerchip has been mum about an increase. Despite a strong renewal rate, the company is clearly sensitive to the potential downside if the economy stumbles. The whiff of recession, or at least speculation about one, seems never to be far away. The membership count sits at 74,500 million and membership revenue for Costco’s fiscal third quarter ending May 12 increased 7.6 per cent, year on year, to US$1.1 billion, driven not only by new members but also upgrades of existing memberships to Executive. Executive memberships now comprise 46 per cent of the total and account for 73 per cent of sales. The worldwide membership renewal rate has remained stable at 90.5 per cent. More discretionary spending Millerchap noted on the conference call that the company’s US customers were coming back to more discretionary types of purchases, singling out toys, tyres, garden, and health and beauty as categories that are leading the discretionary revival. This helped net sales for the quarter ending May 12 to increase 9.1 per cent, to US$57.39 billion, with a 6.6 per cent growth in same-store sales (sales at stores open at least a year). Adjusted for currency fluctuations, same-store sales at warehouses outside the US and Canada rose by a pleasing 8.5 per cent. Shopper traffic was up 6.1 per cent at Costco stores worldwide and by 7.4 per cent outside the US and Canada. E-commerce sales grew by more than 20 per cent, with appliances, and gold and silver bullion as leading categories, along with gift cards and e-tickets. Appliances are benefiting from added-value services, particularly delivery, installation and removal of the old appliance. Mobile app downloads, site traffic and average transaction value were all up strongly. Costco Next, the company’s online marketplace, expanded to 75 vendors. Gross margin rose by more than 50 basis points and net income was US$1.68 billion, an increase of almost 30 per cent on the same quarter a year ago. In the first three quarters of FY24, Costco has generated sales of US$171.4 billion and delivered US$5.0 billion of profit. The company’s fiscal year runs through the end of August.