Costco’s earnings have been down recently, leading to questions about whether younger Americans want the items they have:
The suburban, car-loving, McMansion-owning parents of millennials represent Costco’s core customer base. But what about millennials themselves?…
But the fact that in early March Costco reported lower-than-expected earnings and its stock price has slumped now has some wondering if the company can stay on its hot growth streak going forward. In particular, concern is being raised that Costco’s membership model and its bulk-goods products don’t appeal to the nation’s young consumers—and that the Costco experience might not be a good match for the millennial generation even after they grow older and have families.
It’s understandable that Costco’s customer base skews older. A car is all but a necessity for the typical “stock up” visit to Costco, and compared to older generations, millennials tend to not own cars and don’t seem to want to own cars. Most Costco stores are in suburban locations, while millennials tend to prefer urban living, and even if they are among the relatively few of their peers who could afford to buy a home, home ownership is less important to them than it was to their parents and grandparents as young adults. So … if you don’t have a car, and you don’t have the money or interest to stock up on two years’ worth of paper towels or mustard, and you wouldn’t have the space in your apartment to store this kind of stuff even if you wanted to, then there’s not much sense in shopping at Costco…
In general, Costco’s plan to win over the younger generation seems to be in the taking of baby steps toward meeting their preferences as consumers, while basically just waiting until millennials grow up, buy cars, move out to the suburbs, and (fingers crossed) feel like a Costco membership works for their households. For the time being, Costco doesn’t work for young people simply because “you’re not going to stick big vats of mayonnaise and big stacks of toilet paper in a small apartment,” McAdams Wright Ragen analyst Dan Geiman explained to the Seattle Times. Still, Geiman applauded Costco’s efforts to woo younger shoppers. “Anything you can do to lower the age of your target market is going to be a positive in the longer term,” he said.
Based on some of the metrics mentioned in this story (such as the number of Facebook likes Walmart and Target have compared to Costco), American consumers don’t see big box stores all in the same way. Could the same thing be true for millennials? While there is some data suggesting a number of them want to live in more urban areas, this does not necessarily preclude abandoning all of the shopping patterns more commonly associated with a suburban lifestyle. Perhaps Costco is not as well known, their marketing to younger shoppers has been limited, and these younger shoppers don’t see much appeal in a warehouse sort of store (where is the cool factor in that – Target, in contrast is a chicer big box store and Walmart can be enjoyed ironically).
While companies need to have a broad case of customers, I wonder if Costco could still survive for quite a while, like the TV networks, in focusing on the bulge of older Americans who are also more likely to have larger houses.