Costco’s same-store sales
Costco’s (COST) sales growth outperformance has stemmed from new warehouse openings as well as higher sales at existing warehouses. The company has added 228 warehouses globally over the past ten years.
Ticket and traffic trends
Fiscal 2015 marked the sixth straight year of positive same-store sales growth for Costco. Costco’s same-store sales growth has also outpaced that of rivals Walmart (WMT), Target (TGT), Dollar General (DG), Kroger (KR), and Dollar Tree (DLTR) between fiscal 2011 to 2014[1. Costco’s fiscal year ends in August / September while the fiscal years end in late January / early February for the other retailers].
However, fiscal 2015 has been relatively weaker for Costco compared to Kroger, Target, Dollar Tree, and Dollar General, owing to its higher exposure to non-US currencies and lower gasoline prices. These competitors derive all their sales from the US market.
Costco, Dollar Tree, Dollar General, Target, and Kroger together make up 1.5% of the portfolio holdings in the iShares Russell 1000 Growth ETF (IWF) and 0.98% of the holdings in the iShares Russell 1000 ETF (IWB).
Costco’s same-store sales, or comparable warehouse sales, have been spurred by both higher store traffic and an increase in ticket size. The company has reported higher warehouse traffic and an increase in ticket size for several quarters in a row[1. In constant dollar terms and excluding fuel sales].
Costco’s competitive pricing philosophy, provision of ancillary services as discussed in part five of this series, and increase in the penetration of in-store brand products under Kirkland Signature have had a lot to do with traffic growth. The company believes in providing value and keeping prices low to match the competition. The company also tends to maintain prices even in the face of cost inflation in a bid to maintain market share and keep customers coming. While this can prove detrimental to short-term margins, the strategy has benefited membership loyalty.
Besides, several mainstream competitors don’t offer gasoline services at retail outlets, which also tends to drive higher traffic for Costco. Saving a few cents to the gallon on a recurring purchase like gasoline is also a way to recoup annual membership fees. Gasoline traffic also tends to drive demand for other products at Costco.