Costco shrugs off Amazon
Costco on Wednesday reported that net sales rose 10.1% to $10.02 billion for the month of October, from $9.11 billion during the similar period last year. Foot traffic in the month worldwide rose 3.9% and an even more solid 4.1% in its U.S. stores, according to a company press release and pre-recorded call.
The membership retailer's U.S. same-store sales in the month (excluding the effect of gasoline prices and foreign exchange fluctuations) rose 5.9%, with that metric rising 2.8% in Canada and 7.4% elsewhere internationally, for an overall 5.6% increase. E-commerce sales rose 31% in October, the retailer said.
For the first eight weeks of fiscal year 2018 ended Oct. 29, Costco reported that net sales rose 11.3% to $19.87 billion, from $17.85 billion in the year-ago period.
Despite a low-key e-commerce effort, which nevertheless garnered the company a 31% digital sales rise in the month, and a 20-30 basis point hit due to Halloween's later shift in the calendar last month that slightly hurt its monthly sales, Costco continues to shrug off competition from Amazon. "The number of retailers still doing this is dwindling rapidly," noted Retail Metrics President Ken Perkins in a note emailed to Retail Dive.
Because of its focus on brick-and-mortar operations, which foster a treasure-hunt atmosphere that helps to stuff shoppers' carts with unplanned purchases, many observers remain pessimistic about Costco. Investors remain particularly concerned about defection of Costco members to Amazon, especially after its acquisition of Whole Foods and its continued efforts to expand online grocery delivery. Considering that half of Costco members are also Amazon Prime members, that road would be smooth. But Costco's been playing defense there, too, last month quietly unveiling its CostcoGrocery delivery effort and an expanded delivery relationship with Instacart.
Still, while Amazon infamously slashed prices at Whole Foods following the acquisition, it's not clear that even with that move the e-commerce giant could catch up to Costco, which is on average 58% cheaper, according to JPMorgan's latest price check. Costco does face limits to its store growth, though. Despite intense customer loyalty and a successful expansion into countries like Iceland and France, the company faces issues with store cannibalization, which hurt the retailer in October to the tune of about 100 basis points.
But all that belies Costco's strengths, suggested Gordon Haskett analyst Chuck Grom in a note emailed to Retail Dive, noting that its October traffic increase suggests a two-year traffic stack of 6.7%, 60 basis points ahead of the 12-month average. "While the narrative on [Costco] remains downbeat, we see this as a classic mean-reversion opportunity as sales trends in the U.S. remain incredibly steady and solid," he said.
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