Costco muscles past the competition

Dive Brief:

Costco turned in another set of healthy monthly sales and traffic numbers on Wednesday, including its strongest monthly same-store sales increase (7.3% overall, 7.4% in the U.S. alone in August) since its December 2012 9% rise — easily besting the Retail Metrics consensus estimate of 5.4%. Net sales in August rose 10% to $9.8 billion from $8.9 billion last year, according to a company press release.
Same-store e-commerce sales in the month ended Aug. 27 (which includes digital sales in the U.S., Canada, the U.K., Mexico, Korea and Taiwan) rose 26%, according to the company. The warehouse retailer has improved navigation, search and transaction functions on its site, and has advertised its website in stores, executives said.
Traffic at the warehouse retailer’s stores rose 3.9% globally and 4.3% in the U.S., and its average selling price rose 12.2% from August last year. The company will end its fiscal year on Sept. 3rd with 741 warehouses, including 514 in the U.S. and Puerto Rico, 97 in Canada, 37 in Mexico, 28 in the U.K., 26 in Japan, 13 in Korea, 13 in Taiwan, nine in Australia, two in Spain, one in Iceland and one in France, plus its e-commerce sites. Its eight Houston area stores closed over the weekend due to Hurricane Harvey, but all but one have reopened, the company said on a conference call. The company is prioritizing safety and accepting donations to the Red Cross at stores.

Dive Insight:

Costco is muscling through the "retail apocalypse" with steady growth month after month and a solidly brick-and-mortar-based strategy, though that hasn't prevented many analysts from warning that its relative neglect of e-commerce could ultimately be its downfall.

Costco e-commerce chief Don Burdock has been there since 1992, marking quite an early entry into e-commerce. But that’s in sharp contrast to Walmart, where Jet founder Marc Lore has launched an acquisition spree that represents a major departure for that retail giant. "Jet brought something that Wal-Mart would never have figured out on their own," says Barclays Capital analyst Karen Short, according to Bloomberg Businessweek.

That attitude ignores the fact that e-commerce still represents a small fraction of retail sales, warns retail analyst Nick Egelanian, president of retail development consultants SiteWorks International. "If the market thinks that 50% of retail sales will be via e-commerce eventually, it will punish those who don’t participate (unless you are TJX)," he told Retail Dive in an email. "Of course, e-commerce is currently at 8.5% which I doubt more than 5% of analysts know."

Costco should be wary of the fact that a high percentage of its customers also belong to Amazon Prime, Matt Sargent, senior vice president of retail for Frank N. Magid Associates, told Retail Dive. However, most of those shoppers, unlike Walmart customers keen on low prices and convenience, are also happy to frequent a variety of retailers, Magid research has found.

The warehouse retailer has also cultivated its brand as a well run company that’s good for employees as well as customers and shareholders, providing some of the best wages, benefits and working conditions in retail while maintaining growth and profitability. That extended to its contract with a California trucking business this week: Costco severed ties with the company after learning of labor violations there, according to a report from USA Today.

Earlier this month, though, Costco caught fire from a group of Democratic senators led by senator Sherrod Brown (D-OH), who released a letter they sent to 16 retailers urging them to end practices they say disregard federal safety regulations and the employment rights of truckers. The letter was sent to Target, Hewlett Packard, Home Depot, Hasbro, J. Crew, UPS, Goodyear, Costco, Ralph Lauren, TJX, LG Electronics, JC Penney, Steve Madden, Neiman Marcus, Walmart and Amazon.

The effort comes on the heels of an investigative report from USA Today on California port trucking companies that found drivers going into debt amid pressure to work as long as 20 hours in a day for little pay.

"Port trucking companies’ brazen disregard for federal transportation safety standards and workers’ safety and rights is shameful," the Senators said in the letter. "As federal legislators, we take seriously our oversight of the enforcement of federal labor and transportation laws and will pursue aggressively all federal avenues to put an end to this rampant mistreatment of port truck drivers. As a major U.S. corporation, you also have a role to play in ensuring that you are not complicit in the mistreatment of port truck drivers and that American consumers, your customers, are not unwittingly supporting labor abuses in the United States."