Costco (COST): Making The Poor Feel Rich

December 11, 2008 by Douglas A. McIntyre

Cammonopoly_wideweb__430x3250Wal-Mart (WMT) reported strong same-store numbers for its most recently reported period. New data from MasterCard (MA) indicates that almost every other retailer in the country was bloodied during the early part of November.

One more retailer did well, even against the resistance of a deep recession. Costco (COST) reported that in its fiscal first quarter, same-store sales inched higher by 1% and total sales were up 3.6%.

Costco’s earnings even increased by a penny a share to $.60. This may have been a tad light compared with consensus estimates, but it is extraordinary nonetheless.

The retail business has quickly turned into a tale of “haves” and “have nots”. Among the nation’s largest store companies, Sears (SHLD), Target (TGT), and Macy’s (M) cannot find their own ways. Luxury stores are as dead as door nails.

The one distinction that Costco, which has some high income customers, and Wal-Mart, which does not, share is their ability to buy in bulk, pick what consumers want with uncanny accuracy, and deliver quality products at reasonable prices. Perhaps other retailers have not learned anything from that or perhaps it would be too expensive to change their retail outlets and supply chain habits.

Costco may be the only large retailer that learned the Sam Walton lesson. Costco CEO Jim Sinegal learned his trade at the feet of company founder Sol Price. The model of success built on low prices for quality goods was never lost on him.

It shows.

Douglas A. McIntyre