Costco’s Record Black Friday Not Enough to Stem eCommerce Slump

Costco’s strong membership and renewals were not enough to offset a slump in digital sales.

According to Costco CFO Richard Galanti, while the retailer’s 847 stores in the U.S., Canada and a dozen other countries delivered an 8% increase in its fiscal first quarter sales, a nearly 4% drop in its online business was the brand’s conspicuous laggard.

“The largest eComm merchandise department — majors, which includes consumer electronics and appliances and represents over 40% of our eCommerce volume — was down in the high single digits,” Galanti told investors (Dec. 8) on the company’s fiscal first quarter earnings call, noting relative strength of several key smaller items including tickets, gift cards, tires, candy and health and beauty aids.

Although Black Friday and Cyber Monday happened after the Nov 20th quarter end date, Galanti said the duo delivered the two biggest eCommerce selling days in the company’s history.

“Keep in mind, eCommerce is still a little under 10% of our total company, but that helped a little bit relative to eComm in the last four weeks that we reported,” the 38-year company veteran added.

Comparables and Competition

While Galanti noted that inflation had eased slightly in most categories, especially food, he was clear that any retreat in the record price increases that have crushed consumers and spending over the past year was still very limited.

“We’ve seen some minor improvements in a few areas [and] hopefully it continues,” he said.  “There’s a little light at the end of the tunnel, but it’s still little.”

Modest decline or not, consumers seeking price relief continue to visit discounters and wholesalers like Costco and Walmart in record numbers, including wealthier individuals earning over $100,000 per year, a shift that both big box brands have now noted. In the case of Costco, Galanti said the company’s higher-priced executive membership added about 75,000 new members per week in Q1, with these higher-spending customers now accounting for about 45% of total worldwide membership but nearly 75% of total sales.

At the same time, Galanti said membership fee income was up 6% while U.S. and Canadian renewal rates — which account for about 80% of its total store count — were both above 92%.

That income shift also coincided with a 3.9% increase in shopping frequency and an average transaction size jump of 2.6% worldwide and 6.9% in the U.S. during the past three months.

As far as competition, Costco noted that while gasoline prices had fallen from the peak, they still added about 2.5% to the top line. Even so, Galanti said Costco had purposefully held back a bit on the price of gas and was really more focused on the quantity of gasoline sold than the dollar value.

“We’ve seen strong gallon sales and we’re still taking market share,” Galanti said, noting that when U.S. gallon sales are close to flat, Costco is up in the 10% to 15% range in terms of gallons.  “So we’re still driving people into the parking lot,” he said, calling the retailer’s $30B annual fuel business “the Big Kahuna.”

While Galanti did not specify who Costco was taking gas market share from, he was clear that the retailer’s primary competition had not changed.

“When we’re asked who our toughest competitor is, we look in the mirror, and we say it’s us,” he said.