Costco Wholesale: Consumers Get Cheap

Costco Wholesale (NASDAQ: COST) is the first retailer to report results each month. Its July numbers were particularly strong.

Sales for the four weeks of July were higher by 10%. Wall St. expected that number to be closer to 7% or 8%. Net sales increased to $6.74 billion for the month of July, an improvement of 15% from $5.86 billion during the same period last year, Costco reported.

There is a temptation to see the numbers as proof that the consumer, left for dead, was more active than expected in July. If that consumer was more active, so was the the overall economy. Consumer spending is 65% of GDP, so that conclusion is unavoidable.

The other way to look at the Costco numbers is that shoppers have migrated to big box retailers in greater numbers. The appeal of Costco and Target is that they sell many items in bulk and at low prices. The shopper has to live with outsized boxes of Cheerios and toilet paper. But those items often last several weeks instead of one or two. Consumers have gravitated to this way of purchasing as the growth of Costco shows. Costco’s revenue five years ago was $60.2 billion. Last year, that number had risen to $78 billion. It would be hard to find a retailer anywhere near Costco’s size that has been able to report similar results.

Retail sales among all large chains are not likely to have been very good in July. If that is true, it is proof that shoppers who need to buy things have decided to buy them at the lowest available price.

Douglas A. McIntyre