Specialist
Former senior executive at Costco Wholesale Corp
Agenda
- Trends and developments in the US wholesale retail sector, focusing on Costco (NASDAQ: COST)
- Demand trends across merchandising assortment and membership trends
- Elevated cost environment, new unit growth, supply chain and profitability
- Medium-to-long-term outlook
Questions
1.
Could you open by sharing 2-3 key trends or developments you’ve been following in US wholesale retail?
2.
How has the industry been growing and how much do you expect it to grow this year, next year and perhaps beyond?
3.
Can you unpack Costco’s 10% increase in foot traffic? What do you see as the major factors attributed to that and what is the sustainability of that? Where are we standing relative to that today?
4.
Do you have any growth expectations for the warehouse club industry over the next 3-5 years?
5.
Have Sam’s Club and BJ’s Wholesale been experiencing the same growth as Costco? Do you expect them to maintain the same momentum that Costco might see? You highlighted customer demographic differentiation, but are there other differentiators or strengths from the other two players that you would highlight?
6.
I believe Costco’s market share is about 50-55%. Is that accurate? Do you have any sense of the company’s ability to continue to grow that and how its position might change over the coming quarters or years?
7.
What are your views on Costco’s key merchandising areas and what is your outlook on its performance across categories?
8.
Can you discuss consumer demand category by category?
9.
Are there areas in Costco’s assortment where you believe the company has an opportunity to improve its merchandise and SKU count, perhaps home furnishings such as the TV sector, or is there an expectation to keep it where it is?
10.
Would you say fresh and gas are not experiencing this softening of demand, while other categories are, or are those two experiencing it as well?
11.
Can you talk through some of the key inflationary pressures impacting Costco’s business model that are posing the most risk of deterioration, as well as how effectively Costco can pass on some cost increases to customers without a significant impact on demand?
12.
You highlighted a couple of products on which prices have remained the same for all of history, namely the hot dog and the rotisserie chicken. How does Costco pick the items it is going to increase vs maintain pricing on? How is it doing it in a way that the customer still trusts Costco, knowing that they’re going to continue to get the best price at Costco’s stores?
13.
Where does Costco take price increases? How does it approach selecting the items it takes price increases on?
14.
Are you seeing any signs of Costco customers beginning to trade down?
15.
Can you talk about the importance of private label in today’s environment, the strength of the Kirkland Signature brand and what opportunities that presents in an inflationary environment?
16.
Can you discuss Costco’s vendor and supplier negotiations, how it is approaching the inflationary pressures it is getting from vendors and what role private label plays in supplier negotiations?
17.
How might membership sales and retention trend in an inflationary environment?
18.
What are your expectations for membership growth over the next few quarters?
19.
What has happened to memberships in previous recessionary or inflationary environments?
20.
What do you think attributed to Costco’s slow recovery in 2009-10?
21.
What is your outlook on new unit expansion and how might Costco be thinking about its physical footprint? You started to go into some areas where there is still opportunity to build out new units.
22.
Can you talk through the unit economics of opening a new Costco location?
23.
You’ve mentioned cannibalisation and the pop in new membership throughout the Interview. What level of cannibalisation is acceptable and what type of pop in new memberships do you expect at the opening of a new location?
24.
What are your expectations for new memberships, given a new location? There seem to be different scenarios based on the location, but is there a general rule of new memberships per new unit?
25.
How long on average does it take to get to the maturity level you mentioned for a new location?
26.
You said the expectation for returning to the customer count prior to the new unit would be 3-5 years. What are the drivers of returning to an original customer count in 3-5 years? Is that population density? Is it that people are moving in the area? Is it increasing the amount of membership for existing individuals? Are there other factors?
27.
What is your outlook for the supply chain challenges we’ve seen recently? What labour challenges are present and what is your labour outlook?
28.
How should we think about Costco’s potential profitability profile over the next few years?
29.
Could you share your views on Costco’s management team today and its ability to execute? Are there any moves you might question?
30.
Can you summarise your thoughts and share a best- and worst-case scenario for Costco over the next 12-18 months?
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