Costco - the superbrand that does not advertise

January 2024

Founded in 1994, Costco is the world’s third largest retailer and operates a chain of members-only wholesale warehouses across the globe. Costco, which sells everyday staples, 'stacking them high and selling them cheap', generated annual revenue of $194bn from its 809 global warehouses and 110 million cardholders.

Costco was purchased by Dundas Global Investors in October 2015 following a review which highlighted the growth in membership numbers and charges. We realised that a considerable amount of operating profits could be hypothecated to these fees. In addition, as of 2023, the revenue per square foot of retail space ($1,900) is exceptional when compared to peers such as Walmart ($600) or Target ($450). For a wider comparison, luxury jewellery brand Tiffany& Co is $3,000 per square foot.

The image above showcases Kirkland – Costco’s own label brand – which offers high-quality products, such as golf clubs, at huge discounts compared to branded equivalents. Kirkland has been a great success story and now accounts for around 30% of all sales at Costco. This equates to $60bn of sales per annum, making it one of the biggest brands in the world that many people will be unaware of. By way of comparison, it is larger than Nike by revenue.

The success of Kirkland has helped Costco to continually increase same-store sales over the last decade. Over three years to end 2022,Costco increased its same-store sales by 13% which compares very favourably against the competition. Historically Costco was a bricks and mortar retailer only, but the company now sells online too. Clicks, bargains and the master brand solves the “one trolley is never enough” problem. Costco has grown its dividend by 13% per annum since its maiden dividend in 2004. The pay-out ratio is around 20% giving Costco ample scope to reinvest in the business and return incremental cash to shareholders through special dividends.

Drivers for future growth:

• International expansion – 80% of revenue today is still generated in the USA and Canada. There are decades of growth ahead in international markets.

• Same-store sales growth – 'stack them high, sell them cheap' approach continues to attract customers. Only 4k Stock Keeping units (SKUs) and significant pricing power ensures Costco is a high volume acquirer of the right products for its customers.

• E-commerce – online sales represent only 6% of sales in 2023, but this is increasing rapidly.



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David Keir