How Costco appeals to millennials and Gen Z without specifically targeting them

Dive Brief:

  • Costco executives say that its stores are seeing growth among millennials and Gen Z, though the retailer hasn't been specifically targeting younger consumers, Supermarket News reported.
  • Costco execs attribute its appeal among young people to its focus on organics and tests with coupon websites like LivingSocial.
  • "Costco's low gross margin philosophy, combined with product nimbleness (given its limited <4,000 SKUs) and growing convenience, supports an outlook for the company to remain highly relevant in a fast-changing consumer environment," Kelly Bania, analyst at BMO Capital Markets, said in a research note.

Dive Insight:

Costco may not have run ad campaigns or made business and product decisions specifically with millennials and Gen Z in mind. But many of Costco's practices align with younger consumers' preferences, such as its selection of organic products.

If retailers do want to attract more younger consumers, they may consider investing in carrying a wider selection of organic and better-for-you products rather than marketing campaigns or other gimmicks. That includes both packaged products in the center store and fresh products that retailers make and package themselves along the perimeter.

Mobile and online coupons are particularly popular among the millennial generation, according to eMarketer. Costco's test runs with these types of sites have been successful among this generation, which signals another opportunity for retailers to remain relevant.

Costco last week reported first quarter fiscal 2017 total revenue that fell short of Zacks Consensus Estimate analyst expectations for the eighth straight quarter, hitting $28.1 billion compared to estimates for $28.4 billion. The warehouse club’s net sales were up 3% to $27.47 million from $26.63 million in the year-ago period. U.S. same-store sales increased 1%, hit by the strong U.S. dollar and slightly by gas price deflation for a combined negative impact to the reported comp number of about 0.75% of sales, Costco CFO Richard Galanti said in a conference call with analysts.

November’s sales and traffic in particular were “choppy,” especially during the week of the election, Galanti said during the call.

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Filed Under: Consumer Trends Marketing