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Costco Wholesale Corp. is facing the recession head-on with sharper pricing across the operation to hold onto the edge it has maintained through 30 years of building its reputation for great values, Jim Sinegal, president and chief executive officer of the Issaquah, Wash.-based company, told SN.
“Customer counts are up, though members are being more selective in what they buy,” he noted. “They’re not buying luxury items, but they are buying. If anything, we are sharpening prices on everything in the warehouse because that’s what we do.”
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Fresh foods, dry groceries and sundries, which total about 55% of sales, are selling better than nonfood categories such as jewelry and housewares, he acknowledged.
“Sales in those [nonfood] areas are down because those are purchases that can be deferred,” he pointed out. “But with increasing deflation in certain consumables categories and freight rates falling, food sales remain fairly strong.”
The powerful franchise Costco developed for its Kirkland Signature private label has also helped members seeking value, Sinegal added. “Our brand has gotten a lot of notoriety over the years for quality, and that’s paying off as consumers seek out more private label,” he said.
Patricia Edwards, an analyst with Storehouse Partners, Seattle, said Costco has always been a very efficient company, “But it’s had to strive for even greater efficiencies to compensate for the margin squeeze as it fights food price deflation this year, compared with big commodity inflation a year ago,” she said.
“For example, it’s getting a bit more margin dollars by including some internal costs in the margin calculation for some items in order to keep markups no higher than 14% above cost. And to find ways to drive more trips, it’s opening more regional business centers that focus on the specific needs of business members.”
— Elliot Zwiebach
