WCM Stock in Focus: Costco Wholesale

A key focus of the WCM Quality Global Growth portfolio is to find quality global companies with expanding economic moats and corporate cultures aligned to this growth.

In this mid-month update, I would like to present a company we hold that demonstrates these expanding economic moat and aligned culture attributes.

Stock in focus: Costco Wholesale Corporation

Please note that Jon Tringale is a Client Portfolio Manager rather than a Portfolio Manager, as mentioned in the video.

Costco is the world’s largest wholesale membership retailer with 768 warehouses. Close to 70% of these warehouses are in the US, with the next largest markets being Canada, Mexico the UK and Japan. Costco continues to open new warehouses both domestically and internationally, including the first in China in August of this year.

Total sales in fiscal 2018 totaled US$138bn, of which 28% were generated from the Kirkland Signature brand. The firm employs over 245,000 employees servicing 95 million membership card holders.

Costco has been a holding in the WCM Quality Global Growth strategy since October 2014.

Costco Share Price

October 2014 – October 2019

Costco share price 201910

Source: Bloomberg

The business displays the key attributes common to all holdings in the WCM Quality Global Growth strategy. These attributes are:

  1. an expanding economic moat (rising competitive advantage), and
  2. a corporate culture aligned to this moat trajectory.

Economic moat

Costco’s moat is driven by its enormous size. This allows the passing of the low prices it pays to suppliers through to their customers. As the firm continues to grow, this purchasing power will only get stronger. Warehouse retailing is a no-frills proposition with pallets placed directly on the shop floor. This reduces handling costs which leads to relatively high margins and productivity per store.

Corporate culture

Costco’s culture is driven by the belief that happy employees lead to happy customers and ultimately to happy shareholders. Costco pays their employees an above average hourly rate and are committed to higher customer service and lower prices. Industry low employee turnover rates and industry high membership renewal rates (90% in the US and Canada) are evidence of the success of this approach.

Costco’s culture is the point of difference that sets it apart from competitors and enables this success.


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