Costco, the world’s largest warehouse club operator, revealed a strong store opening pipeline for 2017 as it unveiled its full-year figures.
The business reported a 1.5% uplift in net income for its fourth quarter and a 1.3% increase for the year as a whole.
This came off the back of previously slowing sales growth, with performance being dragged down by gasoline deflation and exchange rates.
Going forward, it seems likely that if growth continues to slow, physical expansion will become a crucial driver of top-line growth.
While many of its peers are scaling back store opening programmes and focusing on smaller stores, Costco is bucking that trend by ramping up its bricks-and-mortar presence and looking to bigger and bigger stores.
New store pipeline
Over the next 12 months, the retailer plans to open 31 new clubs including 17 in the US, seven in Canada and one each in Taiwan, Korea, Japan, Australia and Mexico.
The pipeline compares to a strong 2016 when 29 new clubs were opened, including 24 net new additions in the US, taking Costco’s global total to 719 clubs.
“What’s clear is that Costco still sees potential in its core markets of the US and Canada, hence the ramping up of openings”
What is clear is that Costco still sees potential in its core markets of the US and Canada, hence the ramping up of openings.
In Canada, for example, the seven new clubs next year will take the total to 98, with more than 100 poised to be operating in 2018.
By its own admission, just five to 10 years ago, Costco saw the long-term potential for Canada to be around 91 stores.
The fact that it has been enjoying strong like-for-like sales in the market in recent years – growing 8% in its 2015/16 financial year – has obviously convinced Costco to push on past its initial target.
Similarly, with regards to the US, Costco previously believed it could achieve 50% of its sales from international shops as it slowed down store openings in its home market to focus on overseas expansion.
However, Costco learnt that it could successfully add additional clubs into areas where it was already operating with limited cannibalisation.
“With domestic sales growth slowing over the past year, the opening of new clubs will become increasingly crucial for future sales growth”
As a result, the majority of its new stores will open in the US, which still accounts for more than 70% of group sales – a proportion which is unlikely to decrease in the coming years.
With domestic sales growth slowing over the past year, the opening of new clubs will become increasingly crucial for future sales growth.
That is not to say there are not opportunities globally. Next year Costco will open its first clubs in France and Iceland, while further new market entries are also likely in the future, particularly in Europe.
- Rob Gregory is global research director at Planet Retail