On Wednesday afternoon, Costco reported equally impressive sales results for October. The warehouse club giant's consistently strong sales growth is proof that members are increasingly relying on it for a mix of everyday essentials and discretionary items. Its sales momentum also casts doubt on critics who believe that Costco needs to match rivals that have rolled out in-store and curbside pickup options.
A high-level look
Costco's sales totaled $13.82 billion in the four-week fiscal month of October, up 15.9% year over year. Comparable sales increased 14.4% year over year. Excluding the impacts of currency fluctuations and changes in gasoline prices, adjusted comp sales increased 16.5%, nearly matching the company's September growth pace.
For the second straight month, adjusted comp sales rose at least 15% year over year in each of Costco's three major geographic segments: the U.S., Canada, and other international markets. E-commerce sales jumped more than 90% again, contributing to the excellent sales performance.
Warehouse traffic trends have continued to rebound after dipping in the spring. Globally, traffic rose 4.6% year over year last month, including a 6.2% increase in the U.S. Costco's improving customer traffic -- particularly in the domestic market -- is noteworthy given that COVID-19 case numbers have surged in recent weeks in the U.S. and some of the company's international markets.
Strong merchandise categories continue to shine
The primary drivers of Costco's sales growth haven't changed much in recent months. First, the discount retailer continues to benefit from people eating at home more. Sales of fresh foods and food and sundries both increased by more than 20% in October. Within those categories, Costco noted that meat, produce, frozen foods, and shelf-stable foods outperformed (along with liquor).
Second, Costco is capitalizing on people sprucing up their homes during the pandemic. Major appliances, home furnishings, housewares, small appliances, and consumer electronics all made the list of top-performing merchandise groups last month -- just like September.
Third, people have been spending more time in their yards. That drove big sales increases for garden supplies and sporting goods during October.
Costco couldn't do much better
Several factors have helped Costco deliver amazing sales growth this year. First, its customers tend to have above-average incomes and were probably less likely to suffer job losses due to the pandemic. Second, Costco's warehouses function as one-stop shops, offering a mix of everyday necessities and discretionary items. Third, while Costco prefers to have members shop in person -- where they might be more likely to make impulse purchases -- it offers free two-day delivery on a wide variety of nonperishable items and same-day delivery of most goods from its warehouses via Instacart (albeit at marked-up prices).
Despite its recent success, a growing number of pundits, retail analysts, and investors -- including my Foolish colleague James Brumley -- believe that Costco is making a big mistake by not rolling out a curbside pickup program. (It doesn't even offer a "buy online, pick up in store" option for most items.) Most of its peers now offer curbside pickup, including direct competitors Sam's Club and BJ's Wholesale.
There's anecdotal evidence that Costco may be losing out on some sales because of its refusal to offer curbside pickup. However, offering curbside pickup would be extremely tough logistically for Costco, which boasts much higher sales productivity than other mass merchants. Additionally, the chain operates on very thin margins to keep prices down, which would make it hard to absorb the cost of curbside pickup. Passing on that cost would likely just drive customers to the company's existing delivery programs.
Costco is gaining market share rapidly without curbside pickup in the middle of a pandemic, when contact-free curbside pickup should be most attractive. Minimizing complexity allows Costco to provide the best possible deals, which is what members care about most. There's no reason for the chain to chase the latest retail fad when consumers are voting with their feet for Costco.