While I grew up going to Costco many weekends and still go on monthly trips as an adult, I actually think its business faces a lot of risks over the coming decades.
The entire concept is optimized for upper middle class suburban families with cars. Once millennials age into middle age over the coming decades, will they have kids in the same numbers as their parents (data says no) and thus need or want to buy in bulk? Will they live in the suburbs where warehouses are primarily located? Will they have cars to even get there? Will they want to pay for a membership when they already have Amazon or wide availability of other stores that deliver for free?
I'd predict not in the same rate or numbers as boomers or Gen X, and imagine Costco would need to transform several aspects of their current business model if they wanted to stay relevant 10-20 years from now.
> The entire concept is optimized for upper middle class suburban families with cars. Once millennials age into middle age over the coming decades, will they have kids in the same numbers as their parents (data says no) and thus need or want to buy in bulk? Will they live primarily in the suburbs where warehouses are primarily located? Will they have cars to even get there? Will they want to pay for a membership when they already have Amazon or wide availability of other stores that deliver for free?
My girlfriend and I are millenials with no children. We still have a Costco membership. Hell, I had a Costco membership before I met her, when I lived alone. I buy all my gas at Costco, and the savings alone from that usually equal or exceed the $60 membership dues by the end of the year, so everything else is pretty much gravy.
I buy all my gas at Costco, and the savings alone from that usually equal or exceed the $60 membership dues by the end of the year, so everything else is pretty much gravy.
That seems like an optimization for folks with cars…
The United States is massive. Expecting that public transportation will replace cars to any significant scale is to reveal a lack of exposure to the vast majority of the country. Las Cruces, NM for instance — they aren’t going to build a subway and suddenly replace cars. Midland, Texas, Imperial, California — most people don’t live in a tight urban core. In France, outside of Paris — most people have, and need cars. The idea that millennials are all just dying to live in Manhattan is an out of touch myth. Cars as we know them will certainly change, but personal transportation will always be important — as will suburbs where your kid can grow up with an actual yard. Not everyone wants to live in a Hong Kong-style beehive.
yes, same. That doesn’t refute anything though when it comes to looking at how a massive generational shift will impact their business. It’s not incorrect to say this is a business that whose main target is upper middle class suburban families with cars and that in 10-20 years middle aged millennials will in aggregate likely have fewer reasons to go to Costco in the same rate as our parents for all the reasons mentioned above.
going to Costco as a single millennial is basically a hack, not the target customer at all
I guess I disagree with your premise that childless millenials are going to be so radically different from their parents.
Like, why would I not have a car at middle age? I'm still working for another 30 years, at least. If I didn't waste my twenties moving to a big city, living in a studio apartment, and ditching my car to ride the metro, why would I start now?
> going to Costco as a single millennial is basically a hack, not the target customer at all
So, admittedly my understanding of Costco might be out-of-date, but once upon a time the Wholesale Retailer's job was to sell you stuff at basically the same price they get it from the vendor, such that their margins are low or nonexistent--their revenue comes from the membership dues. They might have their own in-house brand so that they can get even better margins, but we'll ignore that for a sec.
So let's say I'm not the target audience, as a single millenial who only goes to Costco on average to buy about five things. If Costco gets the same membership dues from me despite my using less of the store than full families, isn't that good for Costco?
There are tons of things at Costco you can buy for daily consumption that don't come in a 10-pack (bulk), even for millennials with no kids. Ultimately, everyone looks for value and Costco is very good at providing value.
Millennials are increasingly staying in urban areas, not having as many kids (or kids at all), and not moving to the suburbs in the same rate as Boomers did. This is a well documented phenomenon.
This is indeed true on a statistical basis, but as someone who is technically at the very upper limits of being a millennial I think there is a tendency to exaggerate this trend. Most of the people I grew up with live in the suburbs and have kids. It's delayed compared to older generations, but most of them have ended up there eventually. I'd also say that a huge portion of my (Seattle area) Costco's shoppers are immigrants who likely work in tech and from what I can tell they seem to be making similar choices to what older american generations have with regards to children and where they choose to live.
The oldest millenials are just shy of their forties so biology is about to close some doors on them kids wise, so there goes a reason to move to the suburbs and live in a big house. Not to mention many that do have kids raise them in inner city areas.
This is also the continuation of a trend started by gen-x, so they aren't going to "grow out of it".
even if you didn’t believe the existing data that showed this to be the case, millennials aren’t having many kids. Birth rates are at historic lows. a single adult or childless couple has fewer reasons to shop in bulk than a large family
Hypermarts are a thing in (just outside usually) the dense cities with good public transportation, so Costco is almost (may be need to supersize its stores just a bit more) ready for the future.
Great car ownership point. I love Costco and I grew up going there, but I don't own a car so going is infeasible. Instead I end up using a mix of local grocery stores and Amazon delivery. OTOH I'm certainly not noticing any widespread trends towards reduced car ownership around me unfortunately, but nevertheless I feel like the landscape will be pretty different in the near future.
For about six months I lived in Japan in an apartment in the suburbs. I was a homemaker while my partner worked in the city. I would frequently take the train with large bags to Costco and stock up on bulk purchases such as rice, oatmeal, and other items.[1] We live in Vancouver now, and we usually rent a carshare to make a 2-hour trip or carpool with others on our membership.
I don’t think this situation is entirely representative of most other millennials in North America. As a cohort though, we’re likely to be less well-off than boomers, so I think Costco has economic appeal still.
[1] The canteen area had decent North American-style pizza so I could be tempted to make the trip.
The entire concept is optimized for upper middle class suburban families with cars. Once millennials age into middle age over the coming decades, will they have kids in the same numbers as their parents (data says no) and thus need or want to buy in bulk? Will they live in the suburbs where warehouses are primarily located? Will they have cars to even get there? Will they want to pay for a membership when they already have Amazon or wide availability of other stores that deliver for free?
I'd predict not in the same rate or numbers as boomers or Gen X, and imagine Costco would need to transform several aspects of their current business model if they wanted to stay relevant 10-20 years from now.