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Costco, the bulk-buying retailer, managed to raise sales by a staggering 21 per cent last quarter. The chain had to overcome rising merchandise costs and cautious consumers. Costco credited the sales gain to shoppers wanting to save and buy in bulk.
The retailer also benefitted from a hike in membership fees.
The great results prove that big box stores aren’t doomed, reports Spencer Jakab at The Wall Street Journal.
Jakab explained how Costco has dominated:
“With or without pricier gasoline, which Costco also sells to the tune of nearly three billion gallons a year, that is awfully impressive. But unlike so many of the goods stacked on pallets in its big stores, investors have to pay above-market prices for that growth, about 80% more than the average 2012 earnings multiple of rivals Wal-Mart and Target Corp. That is hard to justify unless Costco’s superior performance can continue for many more years.
Clearly, the wholesale-club concept remains attractive. From carrots to carats—Costco sold 103,000 of the latter in diamonds last year, including a gaudy $185,000 ring one might expect to see at Tiffany & Co.—there are few things it doesn’t offer. The company even undercuts funeral homes on caskets.”
Costco proved that a great merchandise assortment and competitive pricing trumps e-commerce promotions. But the retailer is at an advantage over other big-box retailers like Staples and Best Buy because it specialises in food, not electronics or office supplies that are easily ordered.
But Brian Sozzi, senior equities analyst at NBG Productions, warned that Costco could face food and fuel inflation next year.
Still, the results look good for now.
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