7 Reasons Why Costco Continues to Thrive Amid Retail Uncertainty
In the world of retail, Costco seems to stand head and shoulders above the competition. Just last week the company reported strong June sales with customer spending exceeding analysts expectations. Same-store sales were up six percent and international sales were on the increase too.
Costco, which is essentially a warehousing store, does business a little differently. While it certainly has is competitors in Walmart and Amazon, the brand operates like no other. From its $1.50 hot dog-and-soda loss-leading combos to its popular in-house Kirkland label; Costco sets itself apart from the rest of the retail crowd.
So what gives Costco its edge in the complex retail sector?
1. THEY HAVE WEALTHY MEMBERS
The average Costco member is college educated, owns a home and earns approximately $100,000 a year. What’s more, those members are extremely loyal with an overall renewal rate of 90.6 percent. On top of this, a third of all Costco members are executive members, meaning they pay double the standard $55.00 annual membership fee.
Costco membership-fee revenue rose by nearly six percent to $561 million in the last reported quarter. Money from those fees helps to bolster its bottom line, giving it the ability to sell items at low prices.
2. THEY TREAT THEIR EMPLOYEES WELL
Costco not only has loyal customers but loyal employees too and pay has a lot to do with that. Costco, on average, pays its employees $20.89 per hour in comparison to its closest competitor who pays an average of $12.67 an hour. Furthermore, 88 percent of Costco employees have health insurance through the company.
3. THEY DON’T SHY AWAY FROM LOSS LEADERS
Costco’s rotisserie chickens, hot dogs and gas prices are legendary, not only because they are really cheap, but because they have remained as such for a long time. Costco sells 60 million rotisserie chickens a year at $4.99 a pop but they’re not a moneymaker. They do however, serve to entice customers to the store and, being conveniently placed at the back, lead people through dozens of other goods that they will likely purchase on their visit. The same goes with their hot dog-and-soda combos and their cheap gas.
By maintaining integrity of price points, the company will also continue to develop its loyal following, thus greater membership fees and continued reduced prices.
4. THEY ARE THE LARGEST SELLER OF FINE WINES IN THE US
It may seem absurd that such a low cost retailer would have a reputation for selling fine wines, but Costco has earned that badge of honor. Each year the company sells more than $1 billion of wine, and is the largest seller of fine wines in the U.S.
Even more noteworthy is that some of the company’s best sellers are from their in-house Kirkland label, such as the Signature Series Russian River Valley chardonnay and the Rutherford Meritage.
5. THEY KNOW HOW TO ENCOURAGE YOU TO BUY MORE
If you ever went to Costco to pick up one item and left with a full cart, you are not alone. The reason being, Costco has some tricks up its sleeve to encourage shoppers to buy more than they planned.
One trick they use (think rotisserie chickens) is placing all fresh food at the back of the store, so you have to walk through a considerable amount of retail real estate to get there. Secondly, they don’t label their aisles, you on your way to find the items you are looking for you happen to walk past hundreds of potential purchases.
6. THEY LIMIT CHOICE
A typical Costco store carries just 4,000 items, compared to more than 100,000 separate items at your average Walmart store. Why? As an example, Costco will give you just one brand of ketchup so that it will have multiple vendors bidding to take the single spot. What that means is that Costco holds the reins when it comes to negotiating cost.
7. THEY DON’T MARK UP MORE THAN 15 PERCENT, EVER
As a rule; Costco will not mark anything up by more than 15 percent. Membership fees counter balance this meaning that prices can stay low, so too do tough negotiations with vendors.
According to CBS News, Costco doesn’t mark its executive pay up by much either. CEO Craig Jelinek earned $5.4 million in 2013, compared to $26 million that year for Walmart CEO Doug McMillon.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.