Costco Reports 64.5% Leap in Online Sales

Need to Know 

• Costco’s third-quarter figures show a 64.5% increase in online sales from last year.
• If the figures included third-party delivery apps such as Instacart, online sales growth would be over 100%.
• E-commerce only makes up 8% of Costco’s total sales (or 10% when figuring in third-party platforms).
• The grocery retailer saw same-store sales grow 4.8%, short of the 5.6% analysts predicted.

Analysis

Costco has shared its third-quarter figures, which includes a substantial online sales growth of 64.5% from the year prior. 

In the retail giant’s third-quarter sales reports for the 2020 fiscal year, Costco reported “an incredible rate” of growth in online grocery sales, according to chief financial officer Richard Galanti. 

“Total online grocery grew at an incredible rate during the third quarter,” said Galanti, adding that if Costco included sales from third-party apps like Instacart in its online growth, the overall online sales increase would be over 100%.”

In an earnings call, Galanti said e-commerce made up 8% of Costco’s sales, and, if including third-party apps, would be 10% of total sales.

Third-party apps or not, the 64.5% increase is a leap, even from last quarter. In March, the retailer reported an e-commerce sales increase of 28.4%, attributing the growth to its strong performance during the holiday season. 

This time around, the COVID-19 pandemic may be at cause for the spike in sales. 

As the pandemic continues to disrupt normal life and prevents many customers from shopping in-store, grocery stores across the world are seeing an increase in demand for online service. In the U.S. alone, online grocery sales have increased by almost 25%.

“COVID-19 has accelerated online grocery adoption at a rate the industry hadn’t expected to see for years,” said Sylvain Perrier, president and CEO of grocery e-commerce platform Mercatus. 

However, the skyrocket in digital sales wasn’t enough to save the quarter, due to costs required to operate during the pandemic. The grocery giants lost $283 million in costs related to safety, sanitation, and incremental wages for their staff, resulting in a decreased net income of 7.5% from the year prior. 

“Overall, our [e-commerce] sites have worked pretty smoothly during the quarter despite dramatic volume increases,” said Galantai. “As well we were able to improve on delivery times throughout the quarter as we adjusted to the ramped up order volumes.”

The wholesale grocers expect a gradual profit recovery for the fourth quarter, as demands and restrictions related to the pandemic begin to lift.