Specialist
Former Head at Costco Wholesale Corp
Agenda
- Competitive dynamics across US wholesale retailers
- Top-line drivers – pricing, volumes and revenue during pandemic
- Costco's (NASDAQ: COST) e-commerce and omnichannel execution
- Partnership with Instacart and online delivery costs
- Membership renewal rates and customer traffic
- Post-pandemic outlook and summer 2021 forecast
Questions
1.
Could you give a high-level overview of the warehouse clubs industry, highlighting any key trends and themes you think the investment community should pay attention to?
2.
How do you assess Costco’s opportunity in kerbside pickup? What progress has the company made in the three test locations it is operating in?
3.
Can you elaborate on the customer experience? Is it going to take some time before the typical Costco customer is open to kerbside pickup and online vs the traditional shopping experience in the warehouses given the company’s model?
4.
Can you help us understand the delivery side of Costco’s online business? My understanding is online delivery costs were high and weighed down the margins over the last couple of years. Is this an issue you expect to persist over the coming quarters and years?
5.
Costco mentioned basket sizes for kerbside pickup outpaced their initial expectations. How encouraging is that? Where could it trend? Could kerbside pickup and online basket sizes remain higher than in-store basket sizes in the long term?
6.
What membership growth rates do you expect over the next couple of months, as we emerge from the worst of the pandemic? Is it fair to expect a growth slowdown, especially heading into summer?
7.
How sticky do you expect the customers that Costco has acquired post-coronavirus to be when their membership comes up for renewal? Is there anything that Costco can or should do to drive renewals with this segment of its customer base?
8.
How would you describe Costco’s relationship with Instacart, given Instacart’s positioning in the industry and its valuation? How do you think Costco perceives that relationship, given it is trying to build out its own proprietary online and kerbside pickup business?
9.
What are the cost dynamics for Costco, given that Instacart charges a markup? Would that markup lead Costco to accelerate its own plans for kerbside pickup, as you alluded to?
10.
Is it realistic to think that Costco could abandon Instacart altogether, or do you think the company is committed while it grows out its own proprietary business?
11.
I read that 10% of Costco’s sales were done online in Q4 2020. How do you expect this to grow over the next couple of years? Is there anything inherent about the business model, such as the warehouse experience, that might be a limiting factor in achieving one-third or half of sales being online?
12.
Do you think Costco even wants its online sales to be in the 30-40% range, given the entire value proposition is centred around the warehouses?
13.
Is there a risk that online business growth might cannibalise in-store foot traffic and the company has a portion of its membership base that only shops online?
14.
Basket sizes drastically increased in March 2020 and remained elevated for Costco and across the retail sector. How might this play out over the next couple of months as we emerge from the worst of the pandemic? Do you think basket sizes could be permanently higher than before the pandemic?
15.
Costco claims to have made a lot of progress in reducing shrink recently, particularly in Q4 2020. How encouraging is this? How do you interpret this progress?
16.
Can you help us understand Costco’s claim to being the last in the retail game to raise prices on customers, whether for membership fees or product prices? At what point would it become necessary for the company to raise prices?
17.
What are your thoughts on Costco’s private label, Kirkland? My understanding is there were some weaknesses in penetration over the last couple of quarters. How can the company maximise Kirkland brand penetration?
18.
Can Costco do anything with shelf space or product placement to drive higher penetration for the Kirkland brand in the warehouses, or would that not really make a difference?
19.
Costco has 13 new warehouse locations planned for H2 FY21. Does this make sense to you, given what’s happened with the company recently? Does this align with its historically conservative approach to new warehouses?
20.
What is the typical ramp when Costco opens a new warehouse? Does the company need to do anything around customer awareness or marketing and advertising spend to promote these new warehouses and accelerate the timeframe for new warehouses being cash flow positive?
21.
Is there a point at which Costco might hit a hard ceiling in terms of saturation within the US, given possible expansions beyond 2021?
22.
What are Costco’s international opportunities? I know it has talked about international store expansion, but what is the longer-term upside here, even if it is only Canada?
23.
You mentioned Costco’s high warehouse penetration in California. Do you think the company could achieve that in other states or regions in the near term, or even in a couple of years?
24.
Can you help us understand Costco’s recently announced minimum wage increase? To what extent could that put pressure on operating margins, but retain employee loyalty? How should we understand this tradeoff?
25.
How would you quantify Costco’s international opportunity? Could the company’s international warehouses ever be on par with domestic locations, or does that seem too high?
26.
Could Costco further drive down sourcing and procurement cost?
27.
How confident are you in the merchandising and buying team’s long-term ability to keep pace with consumer trends and what the members want?
28.
What do you imagine as the post-pandemic new normal for Costco from a same store sales perspective, and why?
29.
How do you evaluate Sam’s and BJ’s as competitors, especially considering BJ’s seems to be in a growth mode?
30.
How do you think Costco’s management team thinks about the overall value proposition of its online business vs the Instacart markup vs Walmart’s free click-and-collect offering or Amazon Prime? Does Costco’s overall value proposition make it more attractive?
31.
Could you imagine a scenario where Amazon Prime’s value proposition leads customers to drop their Costco membership? I’ve heard a lot of Costco members are also Amazon Prime members.
32.
Can you expand on your assessment of Costco CEO Walter Craig Jelinek, including the rest of the management team? How confident are you in their ability to steer the ship?
33.
What would be your best- and worst-case scenarios for Costco over the next couple of years?
34.
Do you have any closing comments, or is there anything you wanted to touch on or highlight that we didn’t get a chance to discuss?
