6 takeaways from Costco Wholesale’s latest earnings call

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Costco is ever-evolving, but the average customer on the concrete floor only sees one side of that evolution.

To glimpse the bigger picture, it’s often helpful to hear what the company’s executives say during their quarterly earnings calls.

Key takeaways from Costco’s Q4 2018 earnings call

Here are some choice excerpts from Costco’s chief financial officer, Richard Galanti, made during the company’s October 1 earnings call.

How many members does Costco have?

The warehouse club has 94.3 million cardholders throughout the four continents where it operates — North America, Europe, Asia and Australia.

What does the average Costco employee make?

Amazon may be stealing all the thunder on the wage front this week when it announced it would be raising its minimum wage to $15.

But Costco isn’t far behind that number at all. In fact, the warehouse club giant raised its entry-level wages to $14 and $14.50 in July 2018.

“Even though our starting wage is 14 to 14.50, an employee who’s been here over number of years can get up into the equivalent of the low — the mid-40s to the mid-50s on an hourly basis over time, on top of the great health benefits,” Galanti says.

The executive reveals that it takes employees about five years to get to the top of the pay scale, and that pay increases come yearly.

The average wage is “in the mid-22s, 22.5 roughly,” Galanti notes, adding, “which we believe dwarfs any other retail or retail type entity out there on a base scale.”

How many stores will be opening in 2019?

Galanti says Costco expects to open between 20 to 25 new warehouses in the coming year. Three-quarters of those will be domestic openings and the rest international.

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“We [also] plan to relocate four units to better located and larger facilities, same number as we did this year,” Galanti notes.

Meanwhile, work is underway on Costco’s first location in Shanghai, China, which should open “late next September.” That would mark its entry into mainland China.

Will the tariffs raise prices at Costco?

Perhaps, but you’ll probably feel the impact least and last at Costco.

“Well, I mean, our DNA is we want to be the last to raise the price and we want to work with any supplier to figure out how to not do that. But ultimately, you can’t eat all these [cost increases],” Galanti says.

“But, we feel competitively, we’ll keep doing what we do that we’re usually the last to raise the price and the first to lower.”

Where do online sales sit today?

Costco has had to play catch with e-commerce over the past couple year in relation to a lot of competitors like Walmart and Target.

Galanti says online sales currently represent about 4% to 5% of total sales.

“We don’t see e-commerce taking over our brick and mortar,” he notes. “And, we don’t want to get comfortable at just shopping at Costco online, unless there is not a Costco within 100 miles.”

What’s the future for same-day grocery delivery?

Galanti hints that the company’s partnership with Instacart — to deliver fresh groceries to your home the same day you order them — is “growing nicely,” but “still a pretty small part” of Costco’s business.

Much like the concern expressed above about e-commerce, Costco is keen to make sure that Instacart doesn’t cannibalize store traffic.

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In other words, the company is looking to avoid a situation where people replace their regular shopping trips to the warehouse club with Instacart orders as the same-day delivery option ramps up in popularity.

“The key for us is making sure [customers] still get into Costco occasionally. And so far, we’ve seen a net increase in that, but it’s a very strong population and it’s very small size in its entirety at this point.”

When ordering through Instacart, you’ll find that prices are higher than at your local warehouse club and there’s a $35 order minimum.

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