retail news in context, analysis with attitude

The Seattle Times has a piece about Costco in which a number of salient points were made; CFO Richard Galanti emphasized that the company is in no hurry to make a major shift into e-commerce.

“Apart from competition for workers, Costco, like every retailer, is vying with Amazon for consumer spending in virtually every merchandise category,” the Times writes. “And while Costco continues to grow its e-commerce business, up 32.2 percent in the last fiscal year, Galanti doesn’t seem eager to do so at the expense of its traditional model. E-commerce represents just 4 percent of Costco’s sales, compared to gasoline, which accounted for 12 percent.”

“We don’t see e-commerce taking over our brick and mortar,” Galanti says, adding, “We don’t want you to get comfortable with just shopping at Costco online unless there’s not a Costco within 100 miles.” Galanti also notes that “store visits increased 4.9 percent during the company’s latest quarter.”

The Times also writes that Galanti, reacting to Amazon’s announcement that it is instituting a $15/hour minimum wage for all its US employees, said that “starting pay across the company increased in June to $14 an hour, and in some markets, such as the San Francisco Bay Area, starting pay is higher still. Those increases were tied to the Trump administration tax cuts that reduced Costco’s effective federal tax rate in the fourth quarter to 27.4 percent compared to 34.3 percent a year earlier. Galanti said the company regularly increases pay rates at the top of its wage scale, and that its average hourly pay is around $22.50 an hour, ‘which we believe dwarfs any other retail’.”
KC's View:
I continue to believe that Costco has two long-term issues with which it must deal, though I hasten to add that I would never underestimate Costco’s ability to rise to the challenges it faces.

For one thing, there are some basic shifts taking place that it must grapple with - people are getting married later, having fewer children, occupying smaller dwellings (no basements in which to store big packages!) in more urban environments and maybe not even owning cars, much less minivans or SUVs that they would use to shop places like Costco, which have been designed to appeal to a different demographic. Costco needs to figure out howe to adapt to this shift, though the good news is that it is happening slowly, not overnight.

The other thing may be its whole “we don’t want you to get comfortable with just shopping at Costco online unless there’s not a Costco within 100 miles” attitude. I’m just not sure that any retailer is in a position to dictate to shoppers what should or should not make them comfortable. I hesitate to use this word - because this is, after all, freakin’ Costco - but I think I may detect just a wee bit of hubris in that statement.