Costco continues to deliver strong double-digit growth, especially for ecommerce. Even without club pickup, Costco’s maintains an ability to excel both in-club and online. Although the retailer has a smaller assortment online than many other retailers, Costco is satisfying its members’ demands for low prices and quality products via Costco.com, Costco Grocery, and various same-day delivery third party entities. Strength was not limited to ecommerce as Costco experienced broad strength across its core merchandise offers with ancillary services being the only significant drag on the business as member preference shifts towards goods over services as a result of the pandemic. Even with pandemic pressures, Costco is continuing to remain true to its core offer while adapting to evolving member preferences by focusing on ecommerce, managing through operating and inventory pressures, expanding its physical footprint even with various delays, and finding unique products to solidify the treasure-hunt experience.
- Ecommerce success: In Q1, Costco grew 86% online excluding third-party same-day delivery. Including these entities, growth was more than 100%, and online grocery grew nearly 300%. Online growth has remained strong even as Costco has experienced limited stock and uncertain inventory across various categories. Costco is investing in big and bulky fulfilment with a larger online assortment, a new in-cart delivery scheduler, and call center improvements. Costco Logistics continues to be a focal point for investment to support these growth opportunities.
- COVID-19 inventories: COVID-19 has brought about new consumer preferences and operational challenges. Costco has evolved its approach to safety in-club, leaned into increased ecommerce demand, refreshed aspects of its assortment, and invested in supply chain and operations, all while being faced with various inventory challenges. The club featured new items including a variety of personal protective equipment products and was one of the first major retailers to launch at-home COVID-19 testing kits. Costco is working to build a cushion for high-demand category inventory in essential and non-essential categories.
- Physical footprint: As the virus surges, Costco continues to make headway on new warehouse openings. In Q1, Costco opened 8 net new warehouses, including two new Business Centers in California and Canada (marking the club’s second international business center). That being said, COVID-19 has disrupted the timelines of some of Costco’s opening plans, though Costco is still planning to execute on its existing expansion plans of 20 to 22 openings in FY21. Costco has still not reached a point of saturation for new openings domestically or internationally, a unique growth advantage as Costco plans for the future.
- Treasure-hunt experience: Costco is continuing to capitalize on popular new products and unique offers for its members. Members were excited about Costco’s Star Wars Pyrex’s, hot cocoa bombs, giant Kirkland Signature prosecco bottles, and various services including a private jet membership. Costco also executed on an evolved sample strategy with prebagged samples for members and brought back various online and in-club promotions and popular events like their road shows. Some high-demand items were still not featured in the club’s MVM’s since demand continues to outpace supply in some categories. As the pandemic continues, so too will Costco’s commitment to find new and niche ways to provide its members with value.
Costco’s success across an omnichannel offer amid the pandemic signals strong member loyalty and an enduring value proposition. Traffic and ticket continued positive trends in the quarter with the US driving traffic comps and international markets driving transaction comps. Costco is well-positioned for sustainable growth both domestically and internationally with new club openings, new member opportunities, a growing ecommerce business, and strong existing member trends.