Retail

Costco Sees Shares Fall, Announces Two-Day Delivery

Bulk goods retailer Costco saw its shares fall 6 percent on Friday (Oct. 6) following the company’s reported decline in quarterly gross margins, according to a Reuters news article. Costco cited competition from new grocery delivery services as the catalyst for the revenue dip.

The company’s Thursday (Oct. 5) announcement revealed Costco had “scraped past estimates,” according to Reuters, though its post-results call also shared news of its rollout of two-day grocery delivery services, which may help turn things around.

According to Richard Galanti, Costco’s chief financial officer, the two-day delivery services will encompass both dry groceries and fresh foods. The delivery option is free for online orders exceeding $75 from 376 U.S. Costco stores, Reuters reported. Orders are guaranteed within two business days and will be completed through a partnership with Instacart.

Orders totaling less than $35 will be subject to prices approximately 15 to 17 percent higher than those found in-store, according to the Los Angeles Times. A delivery fee will also be added to the order.

Costco’s news has been met with mixed reviews. Kelly Bania, analyst at BMO Capital Markets, noted the services were a positive step for Costco, which has been one of the few retail establishments to remain quiet in terms of technological innovation.

“We also see risk,” Bania said. “These initiatives will weigh on margins over time and may be viewed as defensive.”

Costco’s shares were not the only dips the grocery industry saw this week, according to Reuters. Kroger and Walmart also saw approximate 1 percent declines.

Though Amazon has repeatedly made news with its purchase of Whole Foods Market this summer, Galanti noted the price cuts at the health food-based grocer were not impacting Costco’s bottom line nor its in-store prices. The company hopes the two-day delivery offering will help it to fight off competition from Amazon and Walmart.

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