Costco

Sector: Food, drug and mass retailers Countries of operation: Australia, Canada, China, France, Iceland, Japan, Korea, Mexico, Spain, Taiwan, the UK and the US (including Puerto Rico) Key product categories: Food and beverages, fuel, health and beauty, general merchandise, and pharmaceuticals Annual Metrics [caption id="attachment_151621" align="aligncenter" width="700"] Fiscal year ends August 29 of the same calendar year
*Trailing 12 months ended May 8, 2022[/caption]   Summary Founded in 1976 and headquartered in Issaquah, Washington, Costco Wholesale operates a chain of membership-only warehouse clubs. The company offers merchandise in the food and sundries (including fresh foods), hardlines, softlines and ancillary categories. At select locations, it also operates food courts, hearing-aid centers, optical dispensing centers and pharmacies. As of June 23, 2022, Costco operates a total of 833 warehouses globally, as well as e-commerce websites in Australia, Canada, Japan, Korea, Mexico, Taiwan and the UK. Company Analysis Coresight Research insight: Costco is the dominant wholesaler among the three major warehouse club chains in the US. It employs a no-frills, low-price strategy, which enables it to generate a large sales volume. The company focuses on keeping a limited product selection, of less than 4,000 stock-keeping units (SKUs)—significantly smaller than rival supermarket chains, which often offer more than 40,000 in their stores. The company averages 9,000 to 11,000 SKUs online, some of which are also available in its warehouses. Costco encourages bargain hunters to spend frequently on unique, enticing deals through treasure-hunt merchandising. The company has successfully implemented a similar business model in markets outside the US. Amid the Covid-19 pandemic, Costco has focused on its nascent digital offerings—and for its quarter ended February 12, 2022, e-commerce comparable sales increased by 13% year over year. Additionally, the company’s membership revenues increased by 10%, boosted by increases in auto renewals. For the quarter, member renewal rates are 92% in the US and Canada and 90% worldwide. While supply chains will likely improve, according to the company, Costco remains vulnerable to a national shortage of truck drivers in the US.

Tailwinds	Headwinds
Increase in membership-fee revenue resulting from increased membership sign-ups at new and existing warehouses Opportunities to boost growth and margins through private labels Opportunities to bolster and expand e-commerce capabilities Pandemic-driven shift in consumer spending from food-service outlets to grocery retail Growing sales through e-commerce platform	Intense competition from other wholesalers and retail verticals, including discount stores, department stores, drugstores, Internet retailers and mass retailers Long-term debt of $7.5 billion at the end of fiscal 2021, up 0.23% from fiscal 2020 and 46.9% from fiscal 2019 The “cannibalization” of existing locations by new openings, likely compounded by the rising share of e-commerce sales

  Strategy Costco outlined its growth strategy in its annual report for its fiscal year ended August 29, 2021, focusing on providing its members with a broad range of high-quality merchandise at competitive prices. It emphasizes the following two core principles: 1. Limit its assortment 

• Limit its assortment to only fast-selling items
• Keep fewer than 4,000 SKUs in its warehouses

2. Expand aggressively

• Open 35 locations in fiscal 2022. The company opened 22 new warehouse in fiscal 2021.
• Expand businesses in existing markets and new markets and integrate acquisitions.

Revenue Breakdown (FY20)   Company Developments

Date	Development
June 27, 2022	Costco recalls 400,000 solar-powered umbrellas over fire risk.
June 24, 2022	Costco faces a shareholder lawsuit alleging inhumane treatment of chickens.
March 7, 2022	Costco announces that James Murphy, Vice President/COO, International Division, will retire by the end of the year
August 30, 2021	Costco names Yoram Rubananko as Executive Vice President, Northeast and Southeast  Regions
July 21, 2021	Costco partners with Uber for a grocery delivery pilot in 25 store locations across Texas
September , 2020	Costco opens its second Business Center store in Canada. The Business Center store format is a chain that caters to small businesses
July 30, 2020	Costco partners with Instacart to launch same-day delivery from 76 warehouses across Canada
April 28, 2020	Costco announces plans to open its first store in Arkansas
April 16, 2020	Costco launches a prescription delivery service from nearly 200 Costco pharmacies in the US, in partnership with Instacart
March 17, 2020	Costco acquires third-party delivery and logistics provider Innovel for $1 billion
September 1, 2019	Costco announces plans to open a second Shanghai store between the end of 2020 and the beginning of 2021
August 27, 2019	Costco opens a warehouse club outlet in Shanghai, its first location in China
June 27, 2019	Costco opens its largest store in Canada, spanning almost 830,000 square feet, in St. John’s, Newfoundland

  Management Team

• W. Craig Jelinek—CEO
• Richard A. Galanti—CFO
• Patrick J. Callans—Executive Vice President of Administration

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Source: Company reports/S&P Capital IQ