#7 - Costco (NASDAQ:COST)
Costco Wholesale’s (NASDAQ:COST) message to warehouse club members during the pandemic could easily have been “go big then go home.” It would seem many Americans took the company’s advice. Like Walmart, COST stock is up about 5%. Costco, predictably, saw a spike in sales. The warehouse model encourages consumers to buy bulk quantities of everyday essentials such as toilet paper, paper towels and personal hygiene items.
It’s also predictable that as the lockdown restrictions began to ease, Costco would say another increase in sales as consumers resupplied their homes. This leads to a bigger question of whether the company will report slower sales in the months. I don’t think so for two reasons.
First, there is no social consensus on reopening the economy. The simple fact is many Americans that have the ability to do so will opt out of participating in the economy until they feel there are effective treatments and or a vaccine. And second, the Costco consumer has a higher average income so not only will they likely be less affected by a recession, but they will have more disposable income to spend.
And even though Costco requires consumers to pay an annual membership fee, the company retains nearly 90% of its consumers. And it’s not hard to see why. Costco provides a great value for some of those everyday items. Essentially the consumer is buying goods at cost so there’s little need to comparison shop.
About Costco Wholesale
Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. The company offers branded and private-label products in a range of merchandise categories.
Read More - Current Price
- $964.01
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $908.81 (5.7% Downside)
With all the talk of a new normal, it’s not insignificant to mention that retail continued to do business throughout the lockdown. Although brick-and-mortar stores were closed, e-commerce thrived. E-commerce sales increased 10.8% in April after a 6% increase in March. This was evident that consumers who had the means to shop were still shopping.
As stores begin to reopen, it is these customers that retailers will be counting on to help lead the economy back. Although consumer confidence is down, it is still well above the levels reached during the great recession. This suggests that consumers have an appetite for spending. And by the early look of it, that may not just be e-commerce. Customers are coming back to brick-and-mortar stores.
There are many unanswered questions about the speed of this recovery. The next several quarters will continue to present uncertainty as the nation gets back to business. However, these companies have business models that will allow them to be catalysts in the reopening. And whether by-product offering or demographic, these customers have enough differentiation that should insulate them from overlapping sales.
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