How Costco Fends Off the Beast That is Amazon

One of the U.S.’s largest retailers is being called “Amazon-proof.” Earlier today Costco’s rating was upgraded from hold to buy, and its price target was boosted from $152 to $200, as its potential is “too great to ignore,” according to Business Insider. Most businesses have been affected by internet wonderland Amazon, but Costco seems to be plugging away happily without much damage.

The upgrade comes after Costco’s November announcement that same-store sales were flat, but when gas and foreign exchange were left out of the equation, comparable sales were up 6%.

Costco can keep itself afloat because of its smart membership model and its ability to get people to come into its physical locations. Its membership programs are on the rise in general, especially for things like Amazon Prime and online grocery stores. But Costco offers things people would just rather buy in person, like food and gas, which is a huge part of its business model. And a lucrative one, as gas prices are currently a bit lower than they have been recently.

Deutsche Bank’s Paul Trussell, who is responsible for upgrading Costco, says, “We think that the gas and food offering combined with the in-store treasure hunt experience provide a powerful competitive advantage that can continue to fend off online competitors.” The store is also switching to Costco-branded Visa cards from Amex to help with traffic accrued through their rewards programs.

It also helps that consumers are more willing to participate in a market that offers them “traffic consistency, a steady income stream through membership, and international growth opportunities.” As Costco is likewise becoming popular internationally, its sales are primed to rise high.

“Looking over the next 18 months, there are now too many catalysts to ignore (e.g. organic growth food, higher gas margins, credit card change to Visa, MFI increase),” Deutsche Bank said of Costco’s upgrade.

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About DevonJ140
I am currently an Accounting Director living in New York City. I love reading and learning more about business, finance, tech, and current events.

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