If you crave exciting investments, Costco Wholesale (NASDAQ: COST) probably isn’t for you. Selling groceries in bulk is far from world-changing, and single-digit growth is the norm for this membership-based retailer.
If your goal is reliable long-term investments, this ho-hum name is worth considering despite its stock’s premium valuation. What the company lacks in pizzazz, it more than makes up for in a bunch of other ways. Three of these ways stand out from the rest.
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Costco Wholesale is considered a club-based warehouse retailer. That just means it charges customers or businesses an annual fee for the privilege of (usually) buying in bulk. It’s the United States’ third-biggest grocer, in fact, according to data from market research outfit Numerator, behind Walmart and Kroger. It also sells non-grocery goods like clothing, appliances, computers, and furniture, but food is its biggest moneymaker.
In the industry’s early days, many people were hesitant to pay such a fee just to have access to bulk-based discounts. They’ve come around, though. Thanks to the immediate availability of competitors’ prices and the ever-growing pain of inflation, shoppers are increasingly figuring out that the annual Costco fee is worth it in the long run. That’s why the membership model’s been slowly poaching market share from more traditional grocers for the past several years.
Underscoring Costco’s bullish argument is the fact that its customer base boasts years of uninterrupted growth, reaching a record 77.4 million memberships and 138.8 million total cardholders as of the end of September.
People are also just more comfortable with the idea of fee-based subscriptions these days. From Amazon Prime to Netflix to gym memberships, paying for access to options and services that aren’t necessarily always used is increasingly normal.
In Costco’s infancy — well before the advent of the internet and aggressive expansion of competitors like the aforementioned Walmart — simply offering low-cost groceries was enough.
Not anymore, though. Customers now expect a wide range of perks and offerings that cater to lifestyles. That’s why more and more grocery chains operate in-store health clinics, for example. Similarly, that’s the reason Amazon’s Prime subscribers have access to a library of on-demand shows and movies, in addition to their free next-day shipping of online orders.
Costco’s now following suit with this idea of offering more to members. Its stores now also house optometrist offices, pharmacies, photograph printing, and travel agent services, just to name a few. The company will also assemble and deliver furniture for you … for a fee. It’s even entered a fray it was at one time adamant about avoiding: Curbside pickup of online orders. Although this service is technically managed by Instacart (which also handles its local deliveries of online orders), it certainly makes the retailer a more convenient shopping option. It also keeps it competitive with Kroger and Walmart, both of which offer comparable amenities.
One perk or service obviously doesn’t make or break a company. However, each one does make it easier to stick with a brand or service provider. So, it’s encouraging that Costco is finally starting to see its business as an entire lifestyle ecosystem, rather than as an operation that just swaps out groceries and other goods for consumers’ dollars. Last quarter’s international membership renewal rate was a healthy 90.4% and an even healthier 92.8% within the U.S.
Perhaps the top reason to buy Costco stock like there’s no tomorrow (despite its frothy price) is that the company’s results speak for themselves. With the exception of the economic fallout of 2008’s subprime mortgage meltdown, this retailer’s revenue has grown every quarter for the past few decades. Operating income and net income have grown almost as consistently. And that includes a short stretch in early 2020 when pandemic-prompted shutdowns made it nearly impossible to do any business.
COST Revenue (TTM) data by YCharts.
This persistent growth isn’t just the result of building new stores (although that certainly helps). With the exception of March of 2020 — when the pandemic shutdowns were in full swing — Costco’s monthly same-store sales have also grown like clockwork. It’s never been huge growth, to be clear, but again, what this retailer might lack in firepower it more than offsets with reliability.
Much of this persistent progress is also attributable to the company’s sheer size and its dominance of the club/warehouse retailing industry. With 614 U.S. stores up and running as of November 2024, plus another 276 outside of the U.S., Costco can dominate within this sliver of the retail space.
None of this means you can simply buy Costco stock and forget about it for years on end. Like any other investment, this one will require the occasional check-in just to see if anything’s changed, or if something not expected right now is brewing on the horizon then. Think something along the lines of Amazon getting into the warehouse-retailing business, for example.
On balance, though, this slow-moving bulldozer looks unstoppable for the near and distant future. If you’re hunting for a solid name you can comfortably dive into today and not worry about constantly monitoring until you sell it, you’d be hard-pressed to find a more compelling prospect … even with 2024’s sizable run-up.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Netflix, and Walmart. The Motley Fool recommends Instacart and Kroger. The Motley Fool has a disclosure policy.
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