An Analytical Recommendation to Costco Wholesale.

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This analysis comes from the point of view of a CMO giving a recommendation to Costco, using data to formulate a strategy.

 

A giant in the retail industry, Costco Wholesale continues to face fierce competition from some of the world’s leading companies. These include large discount stores such as Amazon, Walmart, Target, The Colruyt Group, Carrefour and Kroger. Amazon, acquiring Whole Foods in 2017, has surpassed Walmart as the biggest retailer on the planet, with ‘the number of Americans who subscribe to Prime topping 100 million in 2019’ (Debter, 2019). Walmart ‘ranks No.1 in the US in grocery alone, with 26% of the market share, followed by Kroger at 10.1% and Alberstons at 5.3% (Dougherty, 2019). Other competitors include German deep-discount grocers Aldi and Lidl. Aldi is a direct competitor to Costco’s low-cost model, pushing US retailers to up their game as they begin to shift the industry. The store plans to reach 2,500 stores by 2022 (Meyersohn, 2019), which would position them as the third largest grocery store in America (Figure 1), behind only Walmart and Kroger. Costco is currently in eighth position, with 533 store locations. The evolution of ‘online retailing has improved the ability of customers to shop with digital devices, which has enhanced competition’ (Costco Annual Report, 2018). It is important that Costco ensures they can respond effectively to the changes in the retail industry.

Figure 1: Number of Grocery Store Locations in the US 

 

Source: cnn.com (2019)

Costco filed to go public on the NASDAQ stock exchange in 1985, with the initial price per share at $1.67. The company now has a weekly growth rate of 0.30% and a share price now at $7.09 (Pitchbook, 2019). Although Costco’s profitability has recently fallen short of investors expectations, the company’s Net Profit Margin has also risen from 2.07% in 2016 to 2.32% in 2019 (Dybek, 2019), showing consistent growth and they are also still at the start of their e-commerce expansion. Costco’s 2018 Annual Report, (Figure 2),shows that Total Revenue has risen from $118,025 million in 2016 to $141,576 million in 2018, showing an increase of $22,857 million.

 

Figure 2: (Amounts in millions)

Source: Costco Annual Report (2018)

It is also notable that revenue from membership fees have risen from $2,646 million to $3,142 million, an increase by 10.1%.Taking a closer look at the quarterly financials from 2018 to 2019, (Figure 3), it is clear that the fourth quarter is the most profitable for Costco, with revenue’s rising, expected to continue by year end in 2020.

Figure 3: Fiscal Quarter from 2018 to 2019

Recommendations

Internet speed is very important for users and every second counts, in particular on mobile. ‘47% of consumers expect a web page to load in 2 seconds or less and 20% of people abandon a website that takes more than 3 seconds to load’ (Boostability, 2019). Google will also penalize sites that are too slow when loading content. Performance metrics evaluating the speed of Costco’s website show are shown below. The time it takes until the page is expected to be usable is 5.32 seconds, which according to statistics is too long for a user to wait. In comparison to Amazon, Costco’s website is slower in every single category and should aim to reduce the loading time to below a second to improve user experience. This should be particularly important to a company who aims to provide the best experience for the customer. Therefore, I would recommend identifying the causes for slow performance and improving the overall site speed. This is important, as Costco does not want Google to place the site below competitors in search results, as this could generate less traffic.

 

Figure 4: Performance Metrics

New consumer behaviour data suggests that the increase of smartphone users means companies need to also think about how their website appears on a mobile phone screen. Costco’s mobile website is slow, and the screen does not always show the entire site, therefore web friendly images help your website load faster. If you compare this to one of its competitors, Target, once you open their website on the phone there is a banner at the top that leads you to the online Mobile Target APP. This way, content is loaded much faster, branding and designing is more suitable and interactive engagement is easier. 2019 has seen a rise in mobile reviews in the past 6 months from 5670 to 6835 (Pitchbook, 2019), highlighting the increasing importance of ensuring the mobile website is easy to use. Costco’s APP should also be placed as a banner at the top of the screen once someone opens the website on a mobile device.

Costco’s organic searches are estimated to be 26,200 million per month, with 3,100 million search terms that they are listed for. If we compare this to one of their largest global competitors, Walmart, they have 157,000 million organic visitors per month, with 22,600 million search terms listed (Boostability, 2019). This shows Walmart has a staggering 130,800 million more visitors clicking on their website every month. Costco’s top competitors are shown by most searched in Figure 5, behind Amazon, Walmart and Target.

 

Figure 5:  Top Google Searches in the Retail Industry (2019)

Therefore, Costco needs to increase on the number of search terms they are listed for online so that more traffic can be generated to their website. This can be improved by investing in SEO’s and consistently creating quality content. Costco should think about creating educational content on their products using social media outlets to appeal to a mass audience, such as producing creative videos. This can be monitored by the number of backlinks per month a website has, a crucial factor for organic search ranking. Costco is currently linked by at least 45,000 other websites, whereas Walmart is linked to by at least 150,000 websites. If Costco wants to continue to compete with these industry giants, they must think of more creative ways to generate organic searches.

In order for Costco to be well optimized for search engines, it must connect with its potential visitor base with keywords. Competitors such as Best Buy, Target, Amazon and Walmart most used keywords are Xbox, iPod, iPod Touch, Barbie and Coupons (Concentrateme.com, 2019). The word ‘Xbox’ stood out to have one of the highest search volumes, at 1,000,000, leading visitors to competitors pages. It also has one of the highest SEO positions, currently at number 4, whereas another common keyword amongst competitors, ‘iPod’ has a search volume of 450,000, less than half of the amount of ‘Xbox’. Costco should therefore include this word more in a number of high-attention areas on the site, URLs and meta tags to the websites image file names so that more traffic can be directed to the site, as this statistically a word that their client base will use when searching for products. 

 

Costco’s website shows the word ‘savings’ is their most used keywords, repeated on the page many times. This word is shown to have a search volume of 9,900 average monthly searches, which is less than the top five used by the retail industry. Therefore, Costco should rank these words higher, for example titling one of their pages with the word ‘Coupons’ or ‘Voucher Codes’ and using them in the URL, as the search volume for these words is higher and can lead them to rank above competitors.

 

References

Costco Wholesale Annual Report 2018. Retrieved from

http://investor.costco.com/static-files/05c62fe6-6c09-4e16-8d8b-5e456e5a0f7e

 

Concentrate Long term Analytics. Top walmart.com Keywords for SEO PPC. (2019). Retrieved from http://www.concentrateme.com/wal-mart-keywords/.

 

Debter, L. (2019, May 25). Amazon Surpasses Walmart. Retrieved from https://www.forbes.com/sites/laurendebter/2019/05/15/worlds-largest-retailers-2019-amazon-walmart-alibaba/#35e39bd84171.

 

Dybek, M. (2019, June 7). Costco Wholesale Corp. (COST): Analysis of Profitability Ratios (Q). Retrieved from https://www.stock-analysis-on.net/NASDAQ/Company/Costco-Wholesale-Corp/Ratios/Profitability/Quarterly-Data#Ratios-Summary.

 

Dougherty, T. (2019, May 1). Walmart online grocery seriously stalking Amazon's leadership. Retrieved from https://www.stealingshare.com/walmart-online-grocery-seriously-stalking-amazons-leadership/.

 

Meyersohn, (2019, May 17). How a cheap, brutally efficient grocery chain is upending America's supermarkets. Retrieved from https://www.cnn.com/interactive/2019/05/business/aldi-walmart-low-food-prices/index.html.

 

SEO Website Analysis. (2019). Retrieved from https://www.boostability.com/free-seo-tools/website-analysis

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