COST Stock – 7 Shocking Facts About Costco

Costco sales may sacrifice margins, but make up for it in volume

   
COST Stock – 7 Shocking Facts About Costco

Costco (COST) is a retail giant that many investors love. But admittedly, Costco stock has hit a snag in 2014.

Costco185 COST Stock   7 Shocking Facts About CostcoShares of COST stock are flat over the last 12 months vs. a gain of about 17% for the S&P 500 index. Sure, that’s bette than retail giants Walmart (WMT) and Target (TGT) which are both actually in the red across the same period, but it’s cold comfort for Costco stock holders.

Of course, COST stock is up about 160% from the March 2009 lows and up almost 200% in the last 10 years to outperform the S&P, so the long-term perspective is much better.

So what makes Costco such a hit with consumers and investors?

Here’s a few facts about the retail chain you may not no, courtesy of Kim Peterson over at CBS MoneyWatch.

Costco loses money on its $5 rotisserie chickens: A popular and quick meal solution for shoppers, the $5 rotisserie chickens sold at Costco actually don’t make the company any money when you account for its product and preparation costs. Still, it gets COST shoppers in the door so Costco is willing to keep prices low. It seems to be the right move, since the cheap chickens are so popular they have their own Facebook page.

90.6% of Costco members renew every year. Costco is over 71 million members strong, and the vast majority of those folks keep renewing every year. That’s a huge cash cow for the company at $55 a pop.

Costco employees there are well-paid: The average hourly worker makes more than $20 per hour, flying in the face of other low-cost companies like Walmart or McDonald’s (MCD) that pay mostly minimum wage. The labor costs clearly haven’t hurt COST stock, either.

Gas costs 6 to 12 cents below market price. But like the aforementioned rotisserie chickens, cheap gas is just one more way Costco is trying to get its hooks in shoppers to make them members and frequent shoppers.

Big winner: COST stock benefits from gas sales and staples sales, but did you know Costco is also the largest fine wine seller in the country? Costco sells more than $1 billion worth of wine every year..

There are only 4,000 items. Unlike stores that try to bombard you with choice, Costco simplifies. After all, if there’s only brand of mayonaisse, you’ll buy that jug — without wasting time comparing prices or volumes. It’s less trouble  for everyone, including the Costco staff that stocks the shelves.

The highest markup is 15%. Costco has already collected at least $55 from you for your membership, so there’s a little bit of extra dough in there. But by and large the margins at COST are razor thin, and it’s a volume game.

There are other interesting facts that Kim Peterson shares over at CBS MoneyWatch if you’re interested in learning more.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP


Article printed from InvestorPlace Media, http://investorplace.com/2014/07/costco-cost-stock/.

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