What Does Costco Do That Everyone Else Doesn't?

Confident and competent management is hard to put too high a price on. When Costco (NASDAQ: COST  ) CFO Richard Galanti was asked what the company would do differently because of the shorter holiday season, he simply said, "It doesn't matter, I mean every pre-holiday Christmas day is better than a post holiday Christmas day, but overall we're approaching it the same from an inventory standpoint and it being fairly positive on our buying." In a season of misgiving, that's a refreshing view.

Shorter season pulls retailers down
Sometimes the calendar hurts retailers, and this is allegedly one of those times. Thanksgiving falls on November 28, which is the latest day it can hit. That means that the days between Thanksgiving and Christmas -- also known as the holiday shopping season -- is the shortest that it can ever be.

In addition to the short season, retailers are coming off a soft year for sales overall. Target (NYSE: TGT  ) , for example, just announced a lackluster quarter, with CEO Gregg Steinhafel putting some of the blame on slow economic growth. That's not going to change in the next month and a half.

As a result of the broad weakness, Target, Wal-Mart (NYSE: WMT  ) , and other retailers are all warning the market not to expect much for Christmas this year. Wal-Mart is looking forward to an aggressive holiday season as it competes for consumers' limited dollars.

Ignoring the competition
The beauty of Costco's plan is that it's based on what it wants to do, not what competitors are doing. The company now has 71.2 million members. That's a dedicated user base that allows it to focus on its core competencies rather than stretching to meet the expectations set by other retailers.

That's what helps Costco keep its laser focus. It sees itself as its biggest competition and the service that it provided the last time the customer was in the store. By focusing on beating that expectation, rather than the price down the road, it continues to win more and more dedicated customers -- membership grew by 1.3 million in the fourth quarter.

The end result of Costco's strategy is that it ends up being the driver of price pressure for other businesses. Sometimes that means that the company prices things lower than normal margins would allow, but it does so on its own terms. Those sorts of decisions keep loyal customers coming through the door, keep Costco out in front of its competitors, and keep investors coming back for more.

The value of confidence and competence
Costco succeeds by being very good at what it does and knowing when to make the right moves. Millions of Americans have waited on the sidelines since the market meltdown because they haven't had the right information and haven't been confident in their investing options. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.


Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On November 22, 2013, at 4:34 PM, pondee619 wrote:

    Does the shorter "holiday spending season" really mean that someone on my Christmas list is going to be left off this year? Sorry, Uncle Fred, but because there were 4 less days between Thanksgiving and Christmas this year I couldn't get you anything. I'm going to guess that those who shop early, will shop early, those that shop late, will shop late and everyone one everyone's list will be properly gifted. Any short fall in retail revenue will not be because of a shorter "holiday spending period" but because we are all used to, conditioned to expect and will come to demand that retailers lower their prices and squeeze their margins.

    That, and a poor employment picture, paying for Obamacare, gas, heat, food and other necessaries, will weigh on sales. I can cover my Christmas list in a day or two, maybe three. With two day delivery, I'm done in a week. I'm sure everyone is like that too. The shorter period, JUST AN EXCUSE thrown out in advance to C a retailing exec's A.

  • Report this Comment On November 22, 2013, at 6:57 PM, TMFRedRam wrote:

    Thanks for reading.

    I also think the shorter period is a bit of an excuse. I suppose I can see how it gives me fewer days to think, "Oh look at that -- Suzy would like that," and impulse buy. That doesn't seem significant to me though.

    Also, I have an Uncle Fred.

    -- Andrew

  • Report this Comment On November 22, 2013, at 8:43 PM, Mulehead wrote:

    What Costco does, at least in my location, is unexpectedly cut part time worker's hours by 24%. No notice, no choice, just suck it up right at the time when natural gas heat bills start being an additional burden on an already tight budget.

  • Report this Comment On November 24, 2013, at 9:37 AM, Charlotte wrote:

    I have found costco to pay its employees a livable wage and because of that and great offerings in selection, organic offerings and good pricing I am a very loyal consumer, all year long.

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