Shoppers Are Abandoning Costco, New Data Reveals—Here's Why
Consumers are spending less in the wholesale retailer's stores.
Costco is many shoppers' go-to wholesale store when they want to save money by buying in bulk. But like many other retailers, the company has been struggling amid changing consumer habits over the past few years. Now, even as Costco reports an increase in sales for its last quarter, officials are sounding the alarm on ways in which customers are still pulling back from the retailer. Read on to discover why shoppers are seemingly abandoning Costco right now.
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Costco just posted its latest financial earnings.
While other retailers have reported a decline in sales recently, Costco saw a different trend for its latest financial earning results. In a Sept. 26 press release, the company announced that its net sales for the fourth quarter increased by 9.4 percent compared to last year, and its total net sales for the entire 2023 fiscal year rose 6.7 percent from its net sales in the 2022 fiscal year.
But when you look closer, Costco's success was less evident in its U.S. stores. In the fourth quarter, comparable sales increased by 1.1 percent for the total company but only went up by 0.2 percent for its U.S. market. And during a Sept. 26 earnings call with investors, officials gave more insight that has made investors worried about Costco's shoppers, Yahoo Finance reported.
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Shoppers are spending less money at the retailer's stores.
Consumers are not abandoning Costco altogether. After all, store traffic was up by 5.2 percent worldwide and 5 percent in the U.S. for the fourth quarter of the 2023 fiscal year, Costco CFO Richard Galanti confirmed during the earnings call.
But even though shoppers are visiting the retailer's stores more, they're also spending less when they do, according to the data. Galanti said that the average value of each transaction at Costco was down by 3.9 percent worldwide in this last quarter. And it fell even harder in the U.S., by 4.5 percent, the CFO added.
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They're particularly avoiding buying big-ticket items.
During the earnings call, Galanti said that the decline in spending per transaction for the last quarter was "impacted in large part from weakness in bigger ticket nonfood discretionary items."
This has particularly affected Costco's digital sales, which were down 0.8 for the entire 2023 fiscal year. In the fourth quarter specifically, online sales of items in major big-ticket discretionary categories such as home furnishings, small electronics, jewelry, and hardware were down by 5 percent. And those categories make up over half of the retailer's e-commerce sales, according to Galanti.
Like many retailers, Costco has been struggling to get shoppers back to buying higher-priced non-essentials for some time now, and even discounts aren't really pushing them to budge.
"I remember when we talked a few quarters ago about some of the slowness in big-ticket discretionary. When we got hotter on prices, it did a little bit, but not as much as we would have thought to start with," Galanti admitted to analysts. "We know that when we put Hot Buys and what we call TPDs, temporary price discounts, on items, even medium-sized ticket items, we do see the units increase, but it's not as predictable, I would say, as it used to be."
Costco is also planning to raise its membership fees.
Galanti's comments on Costco's membership price hike during its recent earnings call also have investors concerned, Yahoo Finance reported. The last time the wholesale retailer increased its membership fees was back in 2017, and since hikes usually occur around every five years, the CFO admitted that they've waited a "little longer this time around" to do so.
But despite it now being six years since Costco last increased its membership fee, the retailer seemingly still has no concrete plan on when exactly it will put the change into effect, Galanti confirmed.
"It's a question of when not if… you know, you'll see it happen at some point," he told analysts. "But we can't really tell you if it's in our plans or not. We'll let you know when we know. We feel good, needless to say, about all the attributes of member loyalty and member growth… So, you know, stay tuned. We'll keep you posted. But there's not a whole lot I can tell you about that."
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