The warehouse club has experienced a sales boom, but that’s only part of the story.
Clearly, Costco Wholesale (NASDAQ:COST) has experienced a sales spike due to the coronavirus pandemic that will continue for weeks, maybe months, and produce very strong earnings while many other companies suffer. The company has acknowledged the strong sales, and has taken measures to make sure it can safely serve as many of its members as possible.
That’s the short-term story for the brand. It’s good news in a nation facing overwhelmingly bad news — a bright spot for investors in a sea of declining stocks. In the long run, however, the warehouse club may experience lasting benefits from its response to the coronavirus pandemic.
How will Costco benefit in the long term?
Costco sells memberships and makes somewhere between two-thirds and 75% of its profit from doing that. It sells most of its goods at a very small markup to keep prices as low as possible for members.
This crisis should lead to both an influx of new members and increased customer satisfaction from existing members. That could help the warehouse club not only grow its membership base, but hold onto more current members.
It’s worth noting that Costco has a roughly 90% member retention rate. That’s fairly astounding, since the chain offers but does not require auto-renewal. That means many of its members find enough value to choose to renew year after year rather than being passively renewed automatically.
Supplying people with things they need during a time of crisis should build the connection between the company and its members. Costco may have had (and may continue to have) periodic shortages of some items, but it’s feeding people, keeping them stocked with needed supplies, and it’s well-stocked on non-essentials that may make the time pass faster.
People may not visit the warehouse club during this situation specifically to buy games, books, alcohol, or candy. However, they may pick some up while shopping for essentials and probably will appreciate Costco for providing a little enjoyment in an otherwise bleak time.
Costco is all about connection and value
The warehouse club chain has always offered its members good value. During this crisis, they may appreciate that more because Costco has been business as usual, offering its regular prices and trying to do right by its members.
New members who joined as a way to buy bulk supplies are getting exposed to many of the benefits of being a Costco member. They may not be getting free samples or the full food court experience, but they are getting a selection of needed and wanted items at good prices.
All of this should make Costco stronger going forward. It should lead to new members becoming steady customers and existing members having an even stronger affection for the brand.
Both of those things mean more to the company — a lot more — than any short-term sales gains. Costco is serving its members during a time of great need. That’s going to pay off for a very long time, and make this already strong brand even stronger.
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