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Originally published March 6, 2014 at 3:48 PM | Page modified March 7, 2014 at 9:25 AM

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Costco takes small steps to draw in younger shoppers

The warehouse retailer, which caters to suburban families, hopes to add a new demographic through improved technology and offerings such as organic beef.


Seattle Times business reporter

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Costco Wholesale, the king of suburban warehouse clubs, is putting some effort into looking more hip.

The warehouse retailer caters mostly to an older crowd — those with families and garages big enough to hold mammoth stacks of paper towels.

But as it announced lower than expected quarterly earnings Thursday, the company said it’s also taking incremental steps to draw in a younger demographic — a key strategy in an increasingly competitive, digitized environment rife with rival membership programs such as Amazon Prime.

So Costco has partnered with Google to conduct a same-day-delivery experiment in the San Francisco Bay Area, and has dabbled some in social media even as it strengthens its information-technology systems and its online commerce site.

Costco is also marketing more organic products. Chief Financial Officer Richard Galanti said on Thursday’s earnings call that organic beef and “giant packs of kale” help drive in younger customers. Costco can offer big savings on these relatively bigger ticket items and get better profit margins as well, Galanti said.

These ventures don’t mean the Issaquah-based retailer is going out of its way to cater to millennials. But they mean that Costco acknowledges shifting patterns in retail consumption, as online retailers increasingly invade the turf of brick-and-mortar giants.

“We’re not going to do anything rash but we’re also not going to have our head in the sand here,” Galanti said in the call.

Costco faces some challenges in drawing a younger clientele — its warehouses tend to be more suburban than urban, in part because “you’re not going to stick big vats of mayonnaise and big stacks of toilet paper in a small apartment,” said McAdams Wright Ragen analyst Dan Geiman.

But Costco has plenty of opportunity to grow its relatively small e-commerce segment, and its increasing embrace of organic products will go a long way, he added.

“Anything you can do to lower the age of your target market is going to be a positive in the longer term,” Geiman said.

Costco shares fell 2.76 percent on Thursday as the company widely missed Wall Street estimates for the quarter ended Feb. 16. Its net income fell 15 percent to $1.05 per share, while analysts expected per-share profits of $1.16.

The company said an underperforming holiday season played a big part in the earnings miss, as it engaged in aggressive markdowns and saw low sales for cameras as well as laptop and desktop computers. The holiday season was also about five days shorter than last year’s.

Costco also said it took less profit on fresh foods such as beef, pork and poultry, which have seen large price increases. By offering competitive prices in these products, “they’re basically making investments to drive traffic,” said McAdams Wright Ragen’s Geiman.

The weakening of international currencies such as the yen and the Canadian dollar also helped dampen profits, Costco said.

Costco posted quarterly net income of $463 million, down from $547 million in the same period last year.

Ángel González: 206-464-2250 or agonzalez@seattletimes.com. On Twitter: @gonzalezseattle



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