Costco Wholesale (COST 0.13%) customers love the retailer for much more than its legendary $1.50 hot dog and soda combo. They like buying in bulk to save money, and their loyalty -- evidenced by high member retention -- is just one thing that is making the stock a buy for investors during this holiday season and beyond.
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Investors should like the store's Kirkland brand and member loyalty
Consumers are expected to spend 5% less on average this holiday season, and 84% say they expect to trim spending over the next six months as the cost of living rises, according to PwC's Holiday Outlook 2025. People watching their spending is actually good news for Costco, which helps shoppers save money. It boasts a 90% member retention rate, which is impressive, and I'm encouraged by the expansion of the in-house brand, Kirkland Signature. In the company's September call with analysts, CFO Gary Millership said
New Kirkland Signature offerings allow us to continue to deliver greater value to members and our high-quality alternatives to some tariff-impacted goods. KS items typically offer members 15% to 20% value compared to national brand alternative with equal or better quality.
Costco stock will do well this holiday season and into 2026 because the recurring revenue from memberships provides stability, and buyers with wallet constraints will look to buy in bulk to save on rising prices.
As consumer sentiment has dropped 29% year-over-year, Costco's most recent earnings bucked the trend. Net sales increased 8% from the previous year, and its net sales for the entire fiscal year were up 8.1%.
NASDAQ: COST
Key Data Points
Although Kirkland has been accused of stealing designs from name brands, Costco customers rate Kirkland as having high-quality, even premium, products.
Kirkland Signature is also expanding. As tariffs pressure prices on imports, Costco has decided to skirt around the issue by leaning even more into its in-house brand. In Q4 2025, Costco added more than 30 new Kirkland products to its offering. The company also anticipates adding more Kirkland products in several other categories, from health and beauty to tires and mattresses.
The experience of shopping in a crowded Costco warehouse can be avoided by purchasing products through the company's website and app. Costco's e-commerce business grew 13.6% in its latest quarter compared to a year ago. Overall, in fiscal year 2025, its e-commerce business grew 15.6%. Costco reached nearly $20 billion in sales through its e-commerce platform.
What could go wrong?
What really threatens Costco is if it somehow angers or displeases its loyal customers. A breach in loyalty resulting in declining retention rates is unlikely but could be catastrophic. New and existing customers switching to competitors such as Walmart's Sam's Club, Target, or BJ's Wholesale Club are the main threats to Costco's consistent business. Costco leads all competitors in net sales, but Sam's Club does have a slight edge in physical locations.
Additionally, if the economy continues to slow, new member acquisition may occur at a slower pace than anticipated. Although Costco is leaning into its Kirkland brand, it is not immune to tariff repercussions. It recently filed a lawsuit against the Trump administration seeking a "full refund" of tariffs.
The company claims only Congress has the ability to impose tariffs, and thus, Trump's wide-ranging and often fluctuating approach to tariffs was unlawful. A decision from the court on potential relief is expected in early 2026.
Costco should keep winning
Costco stock looks like it will be a long-term winner as the retailer and grocery giant is expanding its footprint and in-house brand, focusing on e-commerce growth, and working to keep prices low to keep customers renewing their memberships. Investors will get a fresh look at how things are going when the company reports quarterly results Dec. 11. If Costco is able to keep on its successful path, investors will be rewarded for many years.
