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Investors should love
Costco Wholesale (
COST) in 2013 -- and not just when they're trying to buy ketchup by the gallon. Costco isn't the biggest club warehouse in terms of locations, but it is the best. Costco's 430 locations boast much higher revenues per square foot than competitors like BJ's or Sam's Club (around twice as much, in fact) thanks to a niche of selling bargain-priced big-ticket items. That niche also keeps Costco's customer mix skewed towards "mass affluent" consumers.
Costco operates a membership model, which means that only the firm's 64 million members can shop in its stores. That membership restriction provides Costco with a recurring revenue stream, and (more significantly), a very loyal and sticky customer base. Because consumers are less likely to carry memberships from competing wholesale clubs, Costco's existing base of higher-spending customers gives the firm a shallow economic moat vs. its peers.
Because COST earns the majority of its profits from those membership fees, it's able to charge very low prices for its merchandise. Financially, Costco is in stellar shape. The firm carries close to a billion dollars in net cash, a hefty amount of dry powder for a retailer. As consumers keep spending in 2013, Costco should keep rallying.
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