Market were surprising strong today (Tuesday) with the Dow up 0.75% and Toronto up 1.6%.
Almost all of our stock picks rose. Notably Bank of America up 4.5%.
This market rise was partly on expectations that the Fed will “ease” monetary conditions on Wednesday. That being the case if it does not happen we certainly give back the gains on Wednesday.
I mentioned a few days ago that I had some orders in to trim some positions. I was hoping some would sell today but perhaps my prices were a little high. I may regret not selling a little bit on today’s rally, we shall see.
Walgreens however was down 5.9% on news that it was making a big acquisition in the U.K. BUT also on news that its earnings in the latest quarter were down 11%. I have not looked at any of this information yet.
I was in Costco on Sunday and again today. I seldom shop there (I am not the shopper in the family) but always marvel at the place when I do. As a stock it seems expensive. As a business it is exceptional.
It is by far the most efficient retail operation in getting goods to consumers at the lowest cost. It has a limited selection of goods but it has low costs and low prices.
I had heard someplace that Costco marks up everything a maximum of 15 to 18%. In fact on Sunday a clerk told me it 14%. I was not sure I believed that, but maybe. I had calculated its markup to be 17%. By comparison I calculate that Walmart marks up an average of 33%. And small stores like Reitman’s mark up by an average of some 200%!!
The notion of a competitor that can make a decent profit despite marking up by only about 17% (or 15%) must strike a deathly fear in the heart of other retailers.
In the retail business it would be strange to mark all items up by the same amount. Imagine Jewelry. I would guess that most jewelry stores mark up by an average of perhaps 100% or more. How can they compete with 17% (or 15%) (The difference is that I count the membership fees as revenue so it is perhaps 15% actual markup and they get another 2% from membership fees).
I believe Costco has pricing power on may items and could mark up by a higher amount but they choose not to.
The bottom line as an investor the stock looks too expensive but I certainly would not bet against it.
As a customer I trust Costco. In most cases you will get at least a fair price at Costco and I think very often you will get the best price around. Occasionally others may beat it with a special sale but overall Costco simply has a low markup and low costs and the consumer wins with that.