The APP of Zhitong Finance has learned that Costco Wholesale Corp (COST.US) has the lowest profit margin in retail. Historically, the company's gross margin is only about 13 per cent, while competitors tend to have gross margins of at least 20 per cent. In spite of this, Costco Wholesale Corp's profit rose sharply in the fourth quarter of fiscal 2020, with earnings per share rising 27% to $3.13 and net sales up 12.5% to $52.3 billion.
Most of Costco Wholesale Corp's profits come from membership fees. This is part of Costco Wholesale Corp's strategy, which spends little on decoration and marketing, and its cost savings and "no additional services" business model allow Costco Wholesale Corp to provide goods to customers at the lowest possible price.
As people around the world spend more time at home, consumers continue to flock to Costco Wholesale Corp's stores to hoard goods, benefiting the warehouse retailer. In addition to the leveraged gains from sales growth and the almost doubling of e-commerce sales, there are other reasons that have pushed up Costco Wholesale Corp's profits.
1. Fresh food
Fresh food has always been one of Costco Wholesale Corp's products with high profit margins. Sales of fresh food soared this quarter. Due to the limited choice of eating out, consumers turned to Costco Wholesale Corp to hoard goods. Richard Galanti, chief financial officer of Costco Wholesale Corp, said on a recent earnings call that fresh food was the biggest driver of a 70 basis point increase in core gross profit margins. Costco Wholesale Corp also benefited from the increase in labor productivity and the reduction in the cost of product damage and deterioration.
Another advantage of Costco Wholesale Corp's fresh food business is that the risk of fresh food spoilage can be reduced through mass sales. In addition, the same-day delivery of fresh food through Instacart was also popular this quarter, which seems to attract new members and boost per capita consumption. Commenting on the same-day delivery of fresh food, Galanti said: "interestingly, I don't know how many people have told me how much they like the same-day delivery of fresh food, although they will probably buy fresh food or other food at the local supermarket."
two。 Safety priority
Costco Wholesale Corp was one of the first large retailers to require both employees and customers to wear masks since May 4. Although Costco Wholesale Corp provides e-commerce services, it prefers customers to shop in stores, where customers tend to spend more money. The policy of forcing masks shows that Costco Wholesale Corp puts the safety of employees and customers first and does everything she can to prevent the virus from spreading in her stores. In addition, the size and wide access of Costco Wholesale Corp's stores also help encourage people to spend money in its stores rather than other crowded stores. Referring to the rebound in store traffic, Galanti added: "We believe they feel safe, taking into account the safety protocols and mask requirements, the size of the building itself and the width of the aisle. All these aspects are good for us. "
As in-store customers generate more profits than online customers, the rebound could help Costco Wholesale Corp achieve higher profit margins than some of his competitors.
At a time when many other retailers have stopped paying extra "hazard pay" to employees, Costco Wholesale Corp insisted on paying a bonus of $2 an hour for at least the first eight weeks of the quarter. This strengthens its position as one of the highest-paid retailers in the industry and helps to maintain high customer satisfaction. During the quarter, the company spent $281 million on extra wages and health costs for public health events.
3. Gasoline business
Gasoline consumption has generally declined due to the reduction in commuting time and travel miles during the pandemic, but discounted gasoline is still an important product to attract members. as a result, gasoline products have also brought Costco Wholesale Corp better-than-expected profits.
Costco Wholesale Corp's gasoline sales declined compared with the same period last year, due to both a decline in quantity and a drop in prices. But lower oil prices have helped the company make more profits from its gasoline business than traditional gas stations, where oil prices cannot fall as much as gasoline costs. "prices are down and traditional retailing is less competitive, which makes us more competitive and make more money," Galanti explained.
He also pointed out that Costco Wholesale Corp's gasoline sales increased by nearly 10% before the public health incident broke out in February, while the growth rate of other companies in the industry was very low, indicating that Costco Wholesale Corp's price discount is attracting more customers. Today, gasoline sales are down only 10%, suggesting that the company's business has largely recovered and its profit margins are higher than they were a few years ago.