Costco shares more insight on its customers than most retailers. That’s because what the chain’s members buy is interesting, but not actually a key measure of its success.
The warehouse club’s key business metric is actually its subscriber growth and retantion rates. As long as those remain strong, eveything else is just color.
Related: Iconic retail brand closing stores nationwide for good (locations revealed)
It’s not that merchandise does not matter. Costco (COST) needs to deliver a selection of items that make members feel like their membership is worth it. That’s not hard to do given that a basic Gold Star membership only costs $65 while an Executive Membership, which comes with 2% cash back, costs $130.
If the chain offers a good deal on the coffee a member drinks, or sells a liquor they like at a good price, that alone may be enough value to drive renewal. In other cases, the savings on one big purchase will be enough to justify remaining a member.
In most cases, it’s likely a mix. Costco offers strong everyday value and has big deals on items like travel packages, electronics, and even cars.
Don’t miss the move: SIGN UP for TheStreet’s FREE Daily newsletter
Costco customers often end up purchasing unplanned items due to the value offered.
Image source: Xinhua/Ting Shen via Getty Images
Costco members buying big-ticket items
Costco gets a lot of media attention when it brings in items like gold bars or other big-ticket special items. In some cases, that’s because the item itself is not a typical retail item.
In other cases, it’s all about value.
Costco CFO Gary Millerchip talked about big ticket items during the warehouse club’s second-quarter earnings call.
“Our buyers continue to bring in new and exciting items at great values. This included big-ticket consumer electronics products such as 98-inch and 100-inch TVs, Stern pinball machines, and gaming computers, all of which performed very well during the holiday season,” he shared.
Related: Iconic burger chain makes big move to take down McDonald’s
Bigger ticket items have been drivers for the chain.
“For the quarter overall, gold and jewelry, gift cards, toys, housewares, appliances, sporting goods, home furnishings, and small electrics were all up double digits,” he added.
Costco CFO raises a red flag
Costco’s bottom line does not suffer when its merchandise mix sold changes. That’s not the case for rivals like Target and Walmart.
When consumers look to trade down that generally (although not always) means lower margins for those retailers. For Costco, as long as the members are happy, what they buy is not that important.
Millerchip shared some data that might be troubling to its rivals.
“Fresh in Q2 was up high single digits. This was led by double-digit growth in meat where we continue to see a shift toward lower-cost proteins such as ground beef and poultry,” he said.
Value, he noted, has been an increasing focus of members.
“Bakery and produce also performed well this quarter. Food and sundries had low to mid-single-digit comps with cola and international foods showing the strongest results. We continue to look for ways to increase the value for our members, both with national brand items and our private label offerings,” he added.
Related: Giant discount retailer closes stores, sounds the alarm
Costco has a plan to beat its rivals when it comes to value, which is more bad news for Target, Walmart, and regional grocery chains.
“Our goal is always to be the first to lower prices where we see opportunities to do so and the last to increase prices in the face of rising costs,” the CFO shared.
He offered some specific products whre prices went down.
“A few examples of lower prices this quarter include KS Refined Olive Oil Single 3-Liter from $29.99 to $27.99, KS Organic Peanut Butter from $11.49 to $9.99, and KS Tortilla Strips from $5.69 to $4.99. Another way we have been able to lower prices is by continuing to expand the local sourcing of our bulky private label items across the globe. In Q2, we introduced a KS Purified Water SKU for the China market that is produced in-country,” he shared.
