Do You Think COST is a BUY, SELL, or HOLD?
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Last up is cash-rich retailer Costco Wholesale (COST), a warehouse store than boasts 430 locations worldwide. Costco is the standard bearer in the “wholesale” store business. Even though rivals have more stores, Costco makes more money thanks to a niche in providing bargains on big-ticket items that boosts COST’s sales per square foot to around twice what the next guy brings in.
Costco’s model is starkly different from a conventional retailer. The firm doesn’t want street traffic meandering into its stores and buying a 100-pack of chewing gum or a gallon of shampoo. Instead, it operates a membership model, which means that only the firm’s 64 million members can shop in its stores. That membership restriction provides Costco with a recurring revenue stream, and (more significantly), a very loyal and sticky customer base. Because consumers are less likely to carry memberships from competing wholesale clubs, Costco’s existing base of higher-spending customers gives the firm a shallow economic moat versus its peers.