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Retailmageddon? Don’t Tell Costco

The retail world has been filled with doom and gloom stories this year and is on pace to a record number of store closings this year. Specialty apparel? Dismal, with True Religion the latest victim to declare Chapter 11. Sporting goods, electronics…all struggling as the category migrates on-line. Food retail? Hit by the double whammy of deflationary trends and the looming impact of e-commerce and Amazon’s offer to Whole Foods.

How then, can one explain the latest quarterly results from Costco?  Excluding fuel and currency fluctuations, comps were up an astounding 6.9% this last quarter. This easily outpaces their most direct rivals and their comp numbers are actually accelerating into what is otherwise a pretty dismal retail environment.

Why is Costco performing so well? I think it comes down to a few key factors:

  • Costco is simply a great retailer. Great product selection, strong operations, effective private label, compelling excellent customer service, conservative and reasonable expansion, etc. Never under-estimate the power of simply being a fantastic retailer. Despite the headwinds that are obvious in the market, the great performers will always buck the trend.
  • Value is still playing well in the market. The winners are generally being driven by value, whether you look at who’s continuing to open new stores or still driving comp store positive numbers. Costco plays well to value.
  • E-commerce resistant? Assume no company is actually e-commerce resistant but Costco probably took an unfair hit when Amazon announced their acquisition of Whole Foods. Unquestionably, commodity and food driven products will move on-line but penetration today is under 2%. While this business will accelerate on-line, Costco will be less impacted in the short-term. Costco will need a better e-commerce strategy but it will not prevent them from out-performing now.

It’s hard not to marvel at Costco’s results. Costco is heroic given the state of retail today. But, it should also provide hope to other retailers out there that brick and mortar isn’t dead. The bar to succeed is just much higher.

Neil Stern for Forbes

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