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Retail Updates
Costco is the Yahoo! Company of the year ‘22

Costco is the Yahoo! Company of the year ‘22

by Editor
December 15, 2022
in Grocery Retail
Reading Time: 3 mins read
0

What does inflation (of products) got to do with a large format retail chain? Well, sales increases amidst a situation of helplessness and the future ready to bite further. At least, this is the case with one of the world’s largest wholesale club and retail chain, America’s Costco. Founded 38 years ago as a warehouse cum value format, the company operates in a dozen countries worldwide and employs over half a million, 40% of them only in the US. The company had an annual turnover of USD 222 bn as on Aug. ‘22, the Sunday closest to 31 Aug. is when the company closes its annual accounts.

In an interview with Yahoo! Finance Editor at large Brian Sozzi, the company’s long time CFO Richard Galanti in a candid interview shared key insights of the Covid-19 led impact followed by cost inflation of various products including the stress on gasoline prices.

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When quizzed on the company’s stellar performance – 16% YoY on comparable stores (570 in the US, 843 worldwide), Galanti said, “During the summer, when people weren’t traveling and people weren’t going to concerts and ballgames, where they do, they bought stuff for the house– furniture, barbecue sets, electronics. So, in many ways, we benefited. While certain departments were hurt in a small way, others were helped in a big way.”

Back in India too, large format retailers such as D’Mart, SMART (Reliance) and now Smart Bazaar (Formerly Big Bazaar), SPAR, More Hyper and Spencers Hyper have always seen a sharp increase in Sales. The trend is quite surprising since e-commerce prevailed the lives of those in large metros during the first 10-12 months since the Covid-19 lockdown began. This was quickly followed by the entry of Swiggy’s Instamart, Grofers (now Blinkit), Dunzo and newbie Zepto dominating consumer minds with an instant delivery in less than 30 mins. Free of cost delivery was the icing on the cake for customers even as these players bled at a transaction level due to negative unit level economics.

Customers, especially the women folk on the other hand seem to be determined to enjoy an evening at the neighborhood supermarkets and hypermarkets for the weekly needs. Almost all large format offline retailers are close to 2019 levels of sales or have breached them. The touch and feel of products, availability of sizes and wider range are the key reasons why customers are stepping out in hordes. After all, the Q-commerce players offer very limited number of SKUs and this not only deters customer’s choice but also diminishes their search for new stuff.

Lulu Hypermarket, Bangalore

And to top this up the much desired retail therapy, which men and women, old and young all desire for. The 2-3 hours spent shopping is not just to buy goods but also to socialise, meet new people, explore life and preceded or followed by a meal at a restaurant. There are many who compare prices of products on apps like Big Basket, Amazon as well as apps and websites of large format players like Reliance & Spar before choosing where to buy. While this is a time consuming process, most people prefer to shop “at the store” for reasons explained above.

We do not have a national level categorisation of “Company of the Year” sort of a title in India since except D’Mart, most players are privately held or are subsidiaries, which do not disclose individual financials. Yet, the sheer number of transactions and repeat customers these chains attract is a clear indication of the love they have garnered from their discerning and loyal customers.

Meanwhile, Costco is planning to raise in annual membership fee from USD 60 upwards, something which it has not done since 2017. In India, other than Metro, which has a paid membership model, no other retail chain has taken this path. Metro is in effect a wholesale trading company and due to FDI guidelines, they operate this way to ensure they do not cater to end users (except small businesses for their own consumption). It would be interesting to see how SMART and D’Mart would tackle this opportunity where the user has to incur an annual payout to avail benefits all year. Matter of time until this rolls out.

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