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Shop at Costco ( COST 0.03% ) is a popular activity in the United States, and customers have continued to buy in bulk throughout the pandemic. Costco recorded a strong increase in sales, fueled by in-store purchases and also by strong digital growth.
2020 has been a great year for the wholesale king, but so will 2021, even as people start spending on non-essentials. Here’s why, and why it will continue to be good for investors.
A year like no other
Costco stepped in as customers hoarded toilet paper and other essentials throughout the shutdowns. But even after most blockages in the First quarter 2021ended November 22, sales increased 17% and e-commerce increased 86%.
Image source: Getty Images.
Online Grocery sales increased 300% in the third quarter, a significant development as digital continues to take a large share of the traditional storefront category. Costco also works with third-party programs for same-day grocery delivery services, and by including this program, e-commerce comps have increased by 100%. It’s a beautiful growth in a slice of the pie that Amazon and other grocery suppliers are trying to overtake.
2020 turned out to be another great year for Costco, but here’s why 2021 might end up being even better.
Return to a state of normality
Travel and other ancillary units have been closed during the worst times of the lockdown, and sales of these units, which include gas, optical, hearing aids and food courts, have been under pressure as some remain closed and travel is still a fraction of what it was before the pandemic started.
Despite ancillary business closures, the business performed well due to increased focus on essential purchases. Some spending from struggling categories has shifted to home improvement items such as furniture and exercise equipment, but there have been delays in meeting demand due to the pandemic.
The trip began his return to a regular function. With the advent of the vaccine, the travel category is expected to experience a recovery and logistics issues are expected to resolve by March 2021. Demand for other major purchases may decrease when travel and leisure activities resume, as a part of this purchasing power will recede travel. But Costco should see growth in some of these categories in the coming quarters.
Solid and steady growth
Member retention is high, typically around 90%, and membership is growing quarterly, to over 107 million cardholders in the first quarter. Paid executive memberships, which cost double the standard $60 fee, also increased, reaching more than 23 million at the end of the first quarter.
At the end of the first quarter, Costco operated 803 warehouses worldwide, including 558 in the United States. It opened eight new stores in fiscal 2020 and plans to open 20 to 22 more in fiscal 2021.
It’s not much compared to walmartAmerica’s largest retailer, operating more than 11,000 stores worldwide and more than 5,000 in the United States. Costco does not operate in all US states and has plenty of room for growth.
Costco pays a quarterly dividend that isn’t too spectacular, yielding just 0.75%. But he issues a special dividend every few years, including a $10 dividend in November of this year, pushing its average total return into pretty high territory.
Stores will open all of their units as travel resumes, and Costco will see higher growth with its expansion. Costco is likely to see continued growth and another great year in 2021, bringing more gains to shareholders.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.
