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Costco Will Be a Winner as the Economy Reopens

By Pearl Wang – Jun 21, 2020 at 9:33AM

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Costco is doing all the right things to succeed in the current environment, addressing many concerns and preferences consumers have today.

Costco's (COST -4.26%) business and traffic will likely improve as the economy reopens. The company is well positioned as a safe option for people still concerned about COVID-19. Costco is also reopening its food courts and reintroducing sampled food, both popular with customers. Here's more detail about how the global consumer discretionary company is set to succeed through the current recession.

Costco is doing well with making shoppers feel safe

As the economy and stores reopen in the U.S. following COVID-19 lockdowns, some shoppers may be nervous about protecting their health. These cautious consumers may prefer stores that make them feel safer. According to research firm Ipsos, 61% of consumers are still "delaying brick-and-mortar retail for fear of getting sick." Ipsos also found that 62% of shoppers they surveyed would stop shopping at a business that they felt was not taking safety seriously.

The front of a Costco store

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Fortunately for Costco, it ranked No. 2 in Ipsos' Consumer Health and Safety Index, a study ranking businesses based on their health and safety measures taken during COVID-19. Ipsos found that employees at 95% of Costco stores they visited wore face coverings properly inside the stores, and 94% of stores had social distancing markers. These measures could help improve consumer comfort and confidence around shopping there.

Costco is reopening its food courts

Costco plans to reopen most of its food courts this month. The food courts have been a popular feature for Costco shoppers, and their presence will help boost store traffic. During the third quarter (ended May 10), the company saw shopping frequency drop by 2% in the U.S. and 4.1% worldwide. If there is food provided at stores, it could both attract customers to shop and keep them there for longer stretches of time.

Another effort by the global retailer to draw shoppers back to stores is the return of free food samples. Some shoppers have been disappointed by the lack of samples available in recent months. However, Costco will gradually bring back samples while adhering to safety measures. During the earnings call last month, CFO Richard Galanti declined to offer specifics but commented, "It's, needless to say, not going to be where you go and just pick up an open sample with your fingers." He spoke about samples as one measure to get shoppers excited about coming in to stores.

Consumers will likely favor bulk and value shopping during these uncertain economic times

Because of the lockdown-driven recession, shoppers are more likely to be cautious around spending money and look for products that are value-driven. According to research firm Coresight, more consumers spend on private labels during times of economic uncertainty. This benefits Costco because of its popular Kirkland Signature private-label brand. During the prior Great Recession in 2007-2009, Costco actually experienced growing numbers of memberships.

The global warehouse retailer will likely fare well during the current recession and period of uncertainty. It has something else going for it currently -- the additional concerns that consumers have around health and safety. Some may be still be nervous about being exposed to germs while shopping at brick-and-mortar, driving them to buy in bulk to make fewer trips. This behavior would mean more traffic at Costco, where shoppers can buy bulk products at value prices.

Overall, the company looks well positioned for the current environment. It's addressing a number of consumer preferences, including a safe and healthy environment where one can buy quality, well-priced products in bulk. It's also throwing in free samples and dining options to appeal to customers who miss that part of the shopping experience.

Pearl Wang owns shares of Costco Wholesale. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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