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Industry NewsWATCH: Has Costco’s stock gone stale?

WATCH: Has Costco’s stock gone stale?

Thursday, March 9, 2017

 

 

There’s an all-out food fight happening in the U.S. grocery store business, and Costco might just be the latest victim, according to a report on The Street.

The warehouse club retailer’s recently released second-quarter fiscal 2017 comparable store sales and profits missed Wall Street’s forecasts. Shares of the company, which were fresh off hitting an all-time high, subsequently took a hit, the report says.

Costco is the latest grocer to report worse-than-expected earnings. Kroger also released Wall Street-disappointing results last week, with a same-store sales dip of 0.7 per cent.

Costco is hoping to boost revenues by raising its membership fees to $60 a year from $55 for Goldstar and business memberships. According to the company, in 2016 it derived roughly 72 per cent of its operating income from these recurring fees.

“It might be time to pass on Costco. In a market where consumers value convenience and pricemore than ever, raising membership fees seems like a bad move. After all, thanks to Amazon, consumers can pay just a little more for Prime and/or Fresh memberships and have their food delivered straight to the doorstep, without hassling with Costco checkout lines or parking lots,” the report says.

Competition in this space has grown fierce, with retailers battling it out in a price war. Thanks to a produce glut, food prices have been plunging. And discount retailers such as Aldi and Walmart are taking even bigger pieces of market share due to investments in lower prices. Amazon has also entered the fray, offering low prices and efficient and convenient home delivery.

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