We review Costco's latest performance and growth opportunities as it gets ready to open its first club in France.
Competition in France will be intense
Costco is embarking on the next phase of its European expansion from a position of strength. Its third quarter revenue increased by 7.8% to $28.9bn, while comparable store sales, excluding fuel and currency impacts, increased by 5%. The first outlet in France is expected to open around June 22, and follows on from the opening of its first club in Iceland this month. The retailer will open into an intensively competitive market in France, with global retailers including, Carrefour, Casino and Auchan, and price-focused retailers, Leclerc and Lidl, likely to be well prepared for its debut.
Maintaining cautious approach to e-commerce growth
E-commerce continues to be a key opportunity for Costco. Channel sales increased by 11% in the quarter. This is an area of major focus for the business, having been relatively slow to embrace the channel. Over the last year it has focused on improving the offer and online experience, including expanding the range of products offered under its Kirkland Signature private brand. It has also increased the number of fulfilment points from 9 to 17, using existing distribution centres, and started to test direct delivery from club in one location. Costco has also expanded the scope of its third-party partnerships. Instacart's city coverage has increased from 26 to 40, and currently operates from 240 clubs.
Potential to grow Business Centres to 40 outlets
During the quarter Costco opened its first Business Centre in Canada. This marked the first international expansion of the format which focuses exclusively on the needs of small to medium sizes businesses. This includes restaurants, convenience stores and professional services such as doctors’ offices. Operating with a slightly smaller footprint than the core format, it does not offer services such as optical, bakery and butchery, while clothing, toys and sporting goods are not sold. Ranges include equipment and appliances, restaurant supplies, cleaning products and grocery items, with the majority of the latter sold in case pack sizes.
Similar to e-commerce, the retailer has taken a relatively cautious approach to developing this concept, having opened the first Business Centre over ten years ago. Four new outlets will open this year, taking the total to 18. Costco estimates an initial opportunity for 30-40 Business Centres in North America, and while expansion is to remain at a relatively modest pace of three to five new outlets each year, success in Canada could pave the way for it in other Costco markets.