As inflation continues to impact consumer prices, not all retailers are equally affected by changing consumer behavior. Costco, in particular, has demonstrated resilience and adaptability in this economic climate. The company’s strategic focus on unique product offerings, maintaining low prices, and strong membership value has contributed to its robust financial performance.
Costco reported earnings for fiscal Q3 2024 on Thursday, revealing revenue of $57.39 billion. This marks a remarkable 9.1% year-over-year increase, significantly outperforming many competitors in the retail sector. The impressive growth can be attributed to Costco’s strategic mix of innovative product offerings and consistently low prices on standard inventory items.
“It’s a very healthy environment from what we see from our members right now,” said Costco CEO and President Ron Vachris during a call with investors. Vachris highlighted that unique items such as Wagyu beef, $1,200 outdoor swing sets, and gold bars have been particularly successful, driving significant sales. “We can’t get enough; they’re just blowing out,” he said of the swingsets. “But it’s, again, that continuous innovation of merchandise that is exciting our members and really driving some sales for us there…people are engaging at a much higher level.”
Costco’s ability to attract customers with unique and high-demand products has been a key driver of revenue growth. For instance, a report last month showed that the warehouse chain’s one-ounce, 24-karat gold bars, which debuted in October 2023, generate an estimated $100 to $200 million in revenue every month. This product, alongside other innovative offerings, continues to sell out quickly during restocks, underscoring Costco’s knack for understanding and capitalizing on consumer trends. These items not only draw in customers but also create a sense of excitement and exclusivity, encouraging repeat visits and purchases.
In addition to product sales, membership fee income has also been a strong area of growth for Costco. In Q3, the company reported total membership fee income of $1.123 billion, an increase of $79 million or 7.6% year-over-year. Despite the historical trend of increasing membership fees every five years (with the last hike occurring seven years ago), Costco EVP and CFO Gary Millerchip indicated that the company is not in a rush to raise fees again. “We feel really good about membership renewal rates,” Millerchip stated. He added that the company is carefully evaluating the timing of any future fee increases, taking into account recent market conditions and economic concerns.
“We look at what’s happened in the marketplace over the last few years and when we were seeing high inflation and the risk and concern around recession…we’re still evaluating those considerations to determine what the right timing is and when we reach that point where we feel it is the right time, of course, we’ll be very open and direct and communicating that.”
Costco has also reassured its customers about the stability of its popular low-priced items. In response to recent media speculation, Millerchip confirmed that the price of Costco’s $1.50 hot dog and soda combo will remain unchanged. This move is in line with Costco’s strategy of maintaining customer loyalty by keeping prices low on essential and beloved items. By ensuring that key value propositions remain unaffected by inflation, Costco reinforces its commitment to providing value to its members.
Costco’s strategic initiatives and strong financial results have positively impacted its stock performance. As of Friday afternoon, Costco’s stock was up 58% year-over-year, reflecting investor confidence in the company’s ability to navigate economic challenges and continue growing. The positive market response underscores the success of Costco’s business model and its appeal to both consumers and investors.
Costco’s success amidst ongoing inflation is a testament to its effective business strategies, including innovative product offerings, strong membership value, and a commitment to low prices. By continuously adapting to consumer needs and market conditions, Costco has positioned itself as a resilient and thriving retailer in a challenging economic environment. The company’s ability to blend innovation with tradition, maintain customer loyalty through value-driven pricing, and exhibit strong financial health provides a roadmap for sustainable growth and continued market leadership. As Costco continues to innovate and expand its product offerings, it is well-poised to maintain its strong performance and appeal to a broad consumer base, ensuring its place as a leader in the retail sector.