The warehouse retailing concept is relatively young, having been around since just the early 1980s. But in that span of 30-odd years, Costco (NASDAQ:COST) used its subscription-club approach to become the world's second largest retailer behind Walmart (NYSE:WMT), with $150 billion of sales helping it generate over $3 billion in profits in 2018.

That huge revenue base is a key competitive advantage today, but it also means Costco investors can't expect anything like that blazing level of growth. In addition, consumers are changing how they shop in ways that might hurt the bulk purchasing concept. Still, the warehouse giant has all the right ingredients to remain a massive force in retailing for at least the next decade.

A customer browses the aisles at a warehouse store.

Image source: Getty Images.

Retailing strength

E-commerce has upended the industry and forced players like Walmart, Costco, and Kroger (NYSE:KR) to adjust their selling approaches to account for consumers who shop online while still making frequent trips to stores. The share of the retailing industry accounted for by digital spending recently reached 10%, compared with about 4% in 2009, and there's every reason to expect that figure to keep climbing over the next decade.

Costco handled this shift far better than many on Wall Street had feared. The retailer boasts a much smaller store base than Walmart and Kroger, after all, which means it can't easily offer convenient in-store pickup or handle quick shipping from its retailing warehouses.

Yet Costco's growth pace hasn't been harmed by the stampede toward digital spending. Sales gains reached a five-year high in fiscal 2018, in fact, at 7% in the U.S. Compare that with Walmart's 3% uptick or Kroger's 1% gain, and it looks even more impressive. Those metrics suggest that Costco's primary competitive strengths -- its price leadership and its treasure-hunt shopping experience -- will be assets as the industry continues moving toward multichannel retailing.

Profits to come

Product sales are far less important to Costco's bottom line than they are for its retailing peers, since most of its earnings come from subscription fees. The good news for investors is that the outlook on this score is decidedly positive.

The company has been gaining members at a healthy clip thanks to its growing store base combined with market share gains. Total cardholders passed 94 million last year, up from 54 million a decade ago. Nearly 40% of those members pay up for the more premium "executive" status -- up from 29% 10 years ago. And Costco charges more for both its regular and executive membership levels today. Put these trends together, and it makes sense that annual membership income has more than doubled to $3.1 billion.

A further doubling by 2029 isn't out of the question. Costco recently upgraded its co-branded credit card to make the executive upgrade even more compelling. Its subscriber renewal rates are approaching all-time highs, too. And, while it might be a few years before the next fee hike, the company is almost sure to increase its membership charge before too long.

Economic growth is the big variable affecting Costco's sales and earnings path over the next decade, especially since the next 10 years could be weaker than the 10 that followed the Great Recession. The industry could also experience disruptions that investors can't foresee right now. All that said, Costco's steady market share gains and happy customer base leave it poised to accumulate a bigger share of the retailing industry, and far higher profits, between now and 2029.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.