ISSAQUAH, WA - Costco earned over $110 billion in total revenue in fiscal 2014 with a multifaceted retail plan which has paid enormous dividends for the big box retailer. With over $5.9 billion in meat sales alone and a 91% renewal rate among club members in the United States and Canada (the global rate was an equally impressive 87%), Costco has clearly found a retail strategy that works.
Store Growth
Back in 2013, Costco shared that it planned to open 150 new warehouses over the following 5 years, with 55 of these concentrated in the United States alone. The new stores, primarily located in unentered markets, according to Executive Vice President and CFO Richard Galanti, would mean a wider market and more customers shopping each day. This aggressive approach to expansion has been key to the Costco growth model.
So far, Costco has made good on its promise, opening 26 stores in fiscal 2013 and 29 more in fiscal 2014, net of closures and relocations. This brought Costco's store count to 663 and was an important contributor to the 7% leap in its annual revenue, according to The Motley Fool's Eshna Basu.
With 31 new warehouses planned for fiscal 2015, Galanti shared that the retailer does not just see expansion as a way to fend off rivals, but as a reflection of the company philosophy “that we are doing well and we want to ramp up expansion, which is a decision we made two or three years ago."
Eye on International Expansion
Costco has built a presence in several new countries over the recent past. As Basu noted, in fiscal 2014 it had 109 stores built in international locations, not counting Canada. The new store count by country that year was:
- Canada: 3
- Australia: 3
- Korea: 2
- Japan: 2
- U.K.: 1
- Mexico: 1
- Spain: 1
Costco has another 12 international stores planned in fiscal 2015 and it is also strongly considering entering the potent Chinese retail market.
"Costco sees tremendous growth opportunities in China, especially in light of Chinese consumers' increasing appetite for imported products," shared Jim Murphy, Vice President.
Smart Spending
Before fiscal 2013, Costco's capital spending routinely fell in between $1 million and $1.5 million. This changed in fiscal 2013 when the company increased capital expenditures to $2 billion, a number which it retained in fiscal 2014. This is currently projected to increase even more in fiscal 2015 to $2.5 billion to $2.7 billion.
With a 13% return on invested capital in fiscal 2014, compared to a 8.64% weighted average cost of capital, according to Basu, these investments have obviously paid off for Costco. A willingness to invest in itself allows Costco to stay ahead of the retail game, remodeling stores, expanding ancillary business operations, growing cross-stock depot operations and planning ahead for future store expansions.
Taken together, this cohesive retail strategy has been instrumental in generating the enviable revenue numbers Costco currently enjoys. Stay tuned to AndNowUKnow for coverage of this exciting retailer's future operations.
