Costco has a laser focus on its members and delivering them the best possible value. That’s something CFO Richard Galanti talks about a lot during the warehouse club’s quarterly earnings call.
He often speaks about how aggressively his company’s buyers work to push vendors to hold prices down and has shared stories about how it keeps eating parts of rising pricing in order to remain the best value for members.
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He talked about the company’s pricing efforts during its third-quarter earnings call and shared how Costco (COST) – Get Free Report had recently stopped leasing shipping containers to control moving its own goods when prices were very high. Since prices for shipping have dropped, the retailer no longer benefits from doing that.
“This decision allows our merchandising teams to take full advantage of the current shipping market rates as opposed to much higher contracted charter rates. In turn, this allows us to do what we do best and lower prices for our members. In terms of sales,” he shared.
Costco also routinely works with its vendors to lower prices, or at least find ways to not raise them as much.
“I remember when inflation was peaking at 8% and 9% and some out there would say — and we’re known for trying to hold the line and work with our suppliers, how much will they eat of that, how much will we eat of that. At the end of the day, if margins year over year were down 50 or 100 basis points back then, that implies that some portion of it, maybe instead of an 8% or 9% increase, our members were seeing a 6% or 7% or 8% increase,” he shared.
Costco members must pay a fee to be able to shop in the chain’s warehouses.
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Costco Won’t Lower One Key Price
During the earnings, Galanti was asked about promotions around memberships. Sam’s Club routinely offers discounts on its membership prices in order to drive growth.
“Well, for us, there’s really no change. I mean, we do a few promotional things each year. But the biggest thing that we don’t do is in any big way discount our membership. Some of the brochure things that you may sign up for a membership and you get a certain number of coupons related to stuff,” he said.
Costco charges $60 a year for its basic Gold Star membership and $120 for an Executive membership that offers 2% cash back on most items up to an annual total of $1,000.
“I don’t want to go into that, but you can look at our competitors and see what they do. There’s a lot more promotional activity going on elsewhere. And we’re still getting, as I mentioned on the call, year over year 7% increase in new memberships with about just under a 3% increase in the number of new warehouses. So we’re still getting people in,” he added.
Galanti also noted that the chain has been helped by factors beyond its control.
“I think in fairness, that’s been helped by COVID. We being warehouse clubs was a big cavernous place to come and get a lot of things, and that certainly helped us,” he said. “I’d like to think we’re pretty good at what we do, and that’s why more people are signing up, and we’re opening new units and driving more business that way. But really, we have not done — if anything, we’ve done a little less on the promotional side in membership.”