For Costco, the largest chain membership warehouse and storage retailer in the United States, digital transformation is showing results.
In the second quarter ending February 18, 2024, Costco's revenue increased by 5.7% to $58.442 billion and net profit reached $1.743 billion. The most eye-catching thing is that Costco's e-commerce sales increased by 18.4% in the second quarter, more than three times the overall growth rate. The growth in e-commerce sales has driven Costco Logistics to deliver over 1 million logistics deliveries in the second quarter, a 28% increase from the same period last year, reaching a historic high.
01 E-commerce growth stems from improving member experience
Costco is a membership based large warehousing and retail chain store, the third largest retailer in the world. Most of Costco's revenue comes from retail sales. According to the financial report, Costco's net sales in the second quarter were $57.331 billion, with membership fee revenue reaching $1.111 billion.
Richard Galanti, Chief Financial Officer of Costco, attributed the growth in Costco's e-commerce sales in the second quarter to improvements in the e-commerce website and app, which improved the online shopping experience and made it easier for consumers to browse and purchase products. The data shows that Costco's app download volume increased by 2.8 million times in the second quarter, bringing its total download volume to 33 million times.
It is understood that Costco has launched a new mobile application homepage on iOS. The loading time is now less than 2 seconds, compared to 8 seconds before the change. In order to facilitate online payments for users, on February 28th, Costco launched Apple Pay as a payment option for all online members on the website and app.
Richard Galanti stated that in the coming months, Costco's App and website will also launch a feature that allows customers to check if their frequently purchased products are in stock at nearby stores or websites.
Since its first day of establishment in 1976, Costco has been dedicated to offering high-quality products at affordable prices. Costco stipulates that the markup for ordinary goods shall not exceed 14% of the cost, and the markup for self branded Kirkland Signature goods shall not exceed 15% of the cost. The Kirkland Signature brand was launched in 1995, named after Costco's former headquarters located in Kirkland, Washington. Kirkland Signature can account for nearly one-third of Costco's sales.
Nowadays, Costco has over 100 million global members. Although Costco has raised membership prices approximately every five to six years since 2000, known for its low price and high quality, Costco is still able to lower the prices of certain products.
Richard Galanti stated during the earnings conference call that the price of reading glasses decreased from $18.99 to $16.99, and the price of 48 Kirkland Signature batteries decreased from $17.99 to $15.99. Due to the decrease in shipping and product costs, the prices of some new products in categories such as sports equipment, lawns, and gardens will also be lower than a year ago.
Costco members who purchase goods on Costco.com can enjoy free delivery and a 2% cash refund. In addition, Costco has also launched the Costco Next section, which is filled with suppliers who have joined Costco (equivalent to third-party stores on JD.com). Members can receive special discount prices from suppliers, which are lower than the prices on the supplier's website.
For example, the Priority Bicycles electric bike has a membership price of $2599.99 on Costco Next, but on the official website of Priority Bicycles, the price is $3299, which means Costco Next can be about 22% cheaper. In addition to affordable prices, Costco can also enjoy on-site installation services from suppliers.
02 White women are the main users of American retailers
According to data from consumer analysis company Numerator, Costco's typical shoppers are white women with an annual income of $60000, who are often the main shoppers in the household.
Interestingly, the typical user portraits of American retail giants Wal Mart, Home Depot and Lowe's are married white women living in the suburbs. But typical shoppers on Amazon are relatively young, white women with an annual income of about $60000.
Specifically for the users themselves, Costco's loyal fans are of Asian descent, and their likelihood of shopping at Costco is almost twice that of ordinary American consumers. Moreover, Costco members are more likely to be homeowners who love organic food and actively manage their health.
The typical users of Wal Mart usually own their own houses, with an annual income of between 40000 and 80000 dollars, belonging to the middle-income group. The number of high-income customers with annual revenue exceeding $100000 is also continuously increasing.
Home Depot mainly serves two core customer groups, DIY customer group and professional customer group. DIY customers will go home to do their own handicrafts after purchasing goods, and professionals usually include electricians, plumbers, painters, and others with professional needs. The typical annual revenue of Home Depot users exceeds $80000.
Lowe's mainly serves the DIY customer base, but Home Depot users are closer to cities, with Lowe's users mostly located in rural areas, earning between $40000 and $80000.
In terms of shopping behavior, a typical Costco user visits Costco about once every two weeks, about 30 times a year, spending about $100 each time, with an annual expenditure of $3018.
Wal Mart has the highest customer loyalty. In 2023, more than 95% of shoppers have visited Wal Mart twice or more. Typical customers shop at Wal Mart at least once a week, about 67 times a year, and spend about $54 each time, with an annual expenditure of $3578. Moreover, the proportion of websites and apps in these transactions is growing.
But the proportion of typical Amazon users shopping online is higher, with about one-fifth of their purchases occurring online. A typical Amazon customer submits 72 orders to Amazon each year, with an average cost of approximately $37 and an annual expenditure of $2662.
Compared to others, the typical customer spending of Home Depot and Lowe's is much lower. A typical user of Home Depot spends about 10 times a year, each time costing about $85, with an annual expenditure of $856. A typical customer of Lowe's spends 9 times a year at Lowe's, each time costing approximately $90, for a total of $809.
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