millennials

Will millennials kill Costco?

March 11, 2014: 1:50 PM ET

It's one of the benchmarks of suburban living. What happens when its customers are a generation that prefers urban living?

By Brad Tuttle

121130072325-costco-monster

Unknown-1This post is in partnership with Time. The article below was originally published at Time.com.

The suburban, car-loving, McMansion-owning parents of millennials represent Costco's (COST) core customer base. But what about millennials themselves?

As far as retail success stories go, few can compete with Costco's run in recent years. In surveys, customers routinely weigh in on how much they love the Costco shopping experience, and the company's unique business model is celebrated in TV documentaries and glowing magazine profiles alike.

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.

(MORE: Beef: It's What's No Longer Affordable for Dinner)

All in all, a member of the millennial generation is highly unlikely to be a Costco customer, unless he or she happens to among the many still living in their parents' homes (and still taking advantage of their family's warehouse club memberships).

The idea that Costco has thus far been missing out on the largest generation in American history is an obvious cause for some concern for the company and its investors. In a Q&A session with analysts last week, Costco CFO Richard Galanti was asked about how the warehouse retail giant was trying to draw younger shoppers into its stores. He replied that Costco will be taking incremental steps—adding more organic foods and slowly ramping up online sales, among other initiatives with millennials in mind—but that the company will not be making any dramatic changes any time soon. "We're not going to do anything rash but we're also not going to have our head in the sand here," said Galanti.

As Retail Wire pointed out, Costco has a long way to go to reach millennials via the generation's favorite mode of communication, social media: "Costco's Facebook page has 1.1 million likes versus 22.7 million for Target and 34.5 million for Walmart." Meanwhile, Costco's Twitter page is reportedly inactive.

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.

(MORE: The New Costco? Buying Meat Out of a Truck in a Church Parking Lot)

What's unclear is if Costco is doing enough to get younger shoppers on board with what the warehouse membership model has to offer—now, and even more importantly, in the years ahead.

Posted in: , ,
  • How millennials can improve their credit scores

    Today's young adults carry lower credit balances and are less likely to pay their bills late. So why are their credit scores so low?

    By Jean Chatzky

    FORTUNE -- Last week, I wrote about your many, many credit scores, how to know one from the other, and how to move them all in the right direction. That's all well and good, but it will all go much more smoothly if you MORE

    Feb 19, 2014 5:00 AM ET
  • How to get millennials on Obamacare: Vision and dental

    For Obamacare to work, the government would need to either raise the penalty substantially or make the health plans more appealing to young people.

    By Cyrus Sanati

    FORTUNE -- Vision and dental coverage could hold the key to attracting the young and healthy to sign up for Obamacare, potentially saving the new health care system from an early demise. These two relatively cheap services offer the so-called young invincibles a tangible MORE

    Dec 6, 2013 10:14 AM ET
  • Why millennials need Obamacare

    The campaigns encouraging young people to opt out of Obamacare are reckless and stupid.

    By Matthew Segal

    FORTUNE -- You may have seen or read about one of the many campaigns cajoling millennials to opt out of Obamacare. They purport that you are financially savvy or perhaps even patriotic if you choose to forego insurance in lieu of the fine. But let's be clear, opting out of Obamacare is in no MORE

    Oct 21, 2013 12:02 PM ET
  • Why car companies can't win young adults

    Sure, young adults are more cash-strapped than ever. But the bigger problem is that they just don't think driving is cool -- or even necessary -- anymore.

    FORTUNE – When Japanese carmaker Honda launched a boxy SUV called the Element in 2002, it hoped to draw outdoorsy twenty-something buyers. The vehicle sported a sunroof in the backseat -- room for your surfboard. The trunk was plenty spacious, big enough to haul MORE

    - Aug 16, 2013 8:49 AM ET
  • The rise of the mooching millennial

    The U.S. has more than 2 million missing households, thanks largely to 18 to 34-year-olds stuck living with the parentals.

    FORTUNE – Until recently, hedge funds and private equity firms drove the U.S. housing market's recovery, buying a shrinking pool of foreclosed and distressed homes to rent. It seemed like a lucrative investment, given that rents were rising while homeownership fell to record lows.

    But as big investors turn into landlords, it's MORE

    - Jul 26, 2013 5:00 AM ET
  • Young investors return to stocks

    Millennials, once thought to have abandoned equities after the crisis of 2008, are increasingly willing to take on investment risk

    By Sameepa Shetty

    FORTUNE--The 2008 financial crisis drove many U.S. investors, especially young ones, out of the stock market. Investors between the ages of 20 and 29 slashed exposure to stock funds in their retirement accounts by nearly half from 2007 to 2012, according to data from mutual fund giant Fidelity MORE

    Jun 14, 2013 10:57 AM ET
  • Jamie Dimon: Prepare for more volatility

    At Fortune's Global Forum, JPMorgan's CEO said markets will be "scary" until a normal interest rate environment returns.

    By Megan Barnett

    FORTUNE -- It's going to be scary out there in the markets until we reach a more normal interest rate environment. That was the message delivered by JPMorgan (JPM) CEO Jamie Dimon to delegates at the Fortune Global Forum in Chengdu, China on Thursday.

    "It's a different world when central banks are MORE

    Jun 6, 2013 5:15 AM ET
  • Don't worry about today's retirees

    It turns out that Americans in their sixties today have it better than any generation before them, but generations ahead have a less certain future.

    FORTUNE – When the nation's financial system almost crashed back in 2008, it's easy to see why anyone approaching retirement would have panicked. They saw their lifelong savings plummet as home and stock prices spiraled. For 60-somethings, it seemed there wouldn't be enough time to make MORE

    - May 20, 2013 5:00 AM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.