Costco's Online Business Craters

Online sales at Costco Wholesale Corp. (NASDAQ: COST) have faltered badly, contributing to poor quarterly results. In a world where online sales continue to be the future of retail, its e-commerce revenue dropped 3.7% in the most recently reported quarter. It is a sign that Costco’s management continues to move the company in the wrong direction.

Costco’s revenue rose only 8.1% to $53.44. Earnings inched up from $2.98 per share to $3.07. The only bright spot in the figures was comparable store sales in the United States, which were up 9.2%.

According to Barron’s, “Investors had been wary headed into Costco’s first-quarter earnings print after a weaker-than-expected November sales report that surprised investors last week. The results released Thursday amplified those concerns.”

Wall Street has turned against Costco’s subscription model. While the annual cost to shop at Costco may be a key to recurring revenue, it may dissuade consumers from visiting its stores as well.

Costco’s stock is down 15% this year. That compares to 16% for the S&P 500. Walmart, which has lower income customers than Costco, has posted a share price increase of 3% over the period. Dollar General’s shares have risen 5%.

Online sales have been the retail wave of the future since Amazon became successful in the 2000s. Amazon has become the second-largest retailer in America (after Walmart) and one of the biggest companies in the country based on annual sales.

Disappointed investors have not been able to unlock the reason Costco’s online numbers are so terrible. Its higher-end shoppers should be seen to be ideal candidates for online activity. As Costco moves into the holiday season, the need for sales outside its stores becomes even more important.

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