Amazon-Proof Retail Stock: Costco Wholesale
The warehouse club is in a good position to stand up to the world's largest online retailer.
Amazon.com (symbol AMZN) is projected to account for one-half of all internet-based U.S. retail sales by 2021, according to brokerage firm Needham & Co., up from about one-third of sales in 2016. The threat to competitors in the retail space has become so dire that a "Death by Amazon” index that tracks the stock prices of 54 retailers sits near a four-year low, according to research firm Bespoke Investment Group, which compiles the index.
Yet, there are a few big retailers that are finding ways to thrive despite the Amazon onslaught. Warehouse club Costco Wholesale (COST) is one of them. Here's why its stores and its stock should stand up to competition from Amazon. (Share prices, returns and other data are as of April 25.)
Costco’s main weapon against Amazon is the warehouse club’s thriving grocery business. About 82% of shoppers visit Costco primarily to buy groceries, according to a new survey by investment firm Barclays. Many Costco shoppers come to buy frozen foods, meat and produce, which are expensive to transport for home delivery without spoilage. Moreover, Costco’s customers tend to be affluent and loyal. Around 88% of its 86.7 million cardholders renew their memberships every year, Costco says.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Amazon Fresh, the online retailer’s grocery delivery service, poses competition as it expands across the country. But Costco members shop on Amazon primarily for electronics, books and clothing, with groceries accounting for just 25% of purchases, says Barclays. Moreover, Amazon Fresh deliveries cost $15 a month, on top of a $99 annual membership in Amazon Prime. Costco may be able to beat Amazon’s food prices, too, because the warehouse club’s shoppers buy bulk items that cost less per unit.
Even with 729 stores worldwide, including locations in Canada, Mexico, Japan and Taiwan, Costco still has plenty of room for expansion. The company plans to open 30 new stores, including 15 in the U.S., in its 2017 fiscal year (ending in August). Profits could get a lift from an increase in membership fees, slated to bump up in June. Customers lured by the company’s discounted gasoline also tend to shop in the store.
Granted, Amazon could expand its grocery lineup and trim its delivery charges, making Costco less of a bargain in comparison. For now, though, Costco “remains protected” from Amazon and other competitors, says Barclays, which recently upgraded the stock from “neutral” to “buy” and expects shares to hit $185 over the next 12 months. Costco recently announced a “special dividend” of $7 per share, moreover, payable to shareholders who own the stock as of the market close on May 10. The payout comes in addition to the company’s quarterly dividend of 50 cents a share.
Costco by the Numbers
- Share price: $172.68
- Market value: $75.8 billion
- Price-earnings ratio: 31
- Estimated 12-month profit growth: 14%
- Dividend yield: 1.0%
Check out five other retailers that can stand up to Amazon.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Stock Market Today: Nasdaq Soars Ahead of Tesla Earnings
The EV stock rose nearly 2% ahead of its highly anticipated Q1 earnings report, due after tonight's close.
By Karee Venema Published
-
GM Stock Accelerates After Earnings Beat
General Motors beat expectations for the first quarter and raised its outlook for the year. Here's what you need to know.
By Joey Solitro Published
-
Stock Market Today: Nasdaq Soars Ahead of Tesla Earnings
The EV stock rose nearly 2% ahead of its highly anticipated Q1 earnings report, due after tonight's close.
By Karee Venema Published
-
Stock Market Today: Markets Rebound Ahead of Big Week for Earnings
Equities rallied on easing geopolitical tensions, upcoming quarterly results.
By Dan Burrows Published
-
Stock Market Today: Nasdaq Spirals as Netflix Nosedives
A big earnings boom for credit card giant American Express helped the Dow notch another win.
By Karee Venema Published
-
Stock Market Today: S&P 500, Nasdaq Extend Losing Streaks
The two indexes have closed lower for five straight sessions.
By Karee Venema Published
-
Stock Market Today: Dow Slips After Travelers' Earnings Miss
The property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
By Karee Venema Published
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut Warning
The main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
By Karee Venema Published
-
Stock Market Today: Stocks Reverse Lower as Treasury Yields Spike
A good-news-is-bad-news retail sales report lowered rate-cut expectations and caused government bond yields to surge.
By Karee Venema Last updated
-
Stock Market Today: Nasdaq Leads as Magnificent 7 Stocks Rise
Strength in several mega-cap tech and communication services stocks kept the main indexes higher Thursday.
By Karee Venema Published