Costco During the Pandemic
The company's business model in seven charts.
Costco’s revenue growth hit an unprecedented rate of 17.5% in 2021. As seen in the chart, this is the highest revenue growth rate in the last 16 years.
Note: Costco’s fiscal years end in August, so their 2021 numbers measure the company’s performance from September 2020 through August 2021.
While Costco’s 17.5% revenue growth rate is impressive, let’s take a step back and note that growing revenue gets more difficult as a company scales.
The chart above shows that Costco added $29 billion in additional revenue in 2021 compared to 2020. Meaning that Costco added more revenue last year than 2019 and 2020 combined. Even crazier, Costco grew revenue more in 2021 than 2005 through 2010 combined.
When put into context, the company had an insane 2021.
The chart above outlines how much revenue Costco makes per each store by geography. Costco has stores all over the world but some stores make more than others.
Across all regions, Costco increased revenue per store pretty dramatically. In 2021, Costco topped $251 million in sales per store in the United States, up from $221 million in 2020.
So what drove revenue growth? Partially a large increase in the number of paying members per store. You need to be a member to shop at a Costco store, and Costco collects revenue from merchandise and the membership fees it charges its members.
Costco’s business model only works if the stores are busy and the number of paying members per store is a strong proxy for that.
How is the inventory turn ratio calculated? Cost of goods sold divided by average inventory.
The ratio is used to determine how effective a company is in limiting inventory costs and moving products through its supply chain. The higher the ratio, the better.
The pandemic dramatically affected inventory levels at retailers and Costco was not immune. Costco is known in the retail industry for turning over inventory rapidly so their inventory metrics are historically strong.
However, the company turned through inventory even faster than ever in 2021, as seen by the 12.90 inventory turn ratio number in the chart.
Lastly, we have Costco’s all-important metric: operating expenses.
Costco’s business model only works if the company can improve sales per store and religiously cut costs to improve efficiency. In 2021, Costco benefited from such efficiency as volume went through the roof.
SG&A stands for “Selling, General and Administrative” and is how Costco categorizes its operating expenses like costs like employee salaries, marketing, rent, and utilities. Since the company sells products at very low margins, they keep a very tight control on operating expenses.
Some examples of how Costco keeps its operating expenses low:
Limiting store hours so they don’t have to pay employee salaries during slow hours.
Only stocking 3,000 - 4,000 different products in their store to reduce how often products are restocked in the stores and the number of overhead on salaries like in the purchasing and finance departments.
Using sun lights on store ceilings to reduce electricity costs from lighting the stores.