⚠ Each New Warehouse Cannibalises the Old OnesModerate threat
Costco Wholesale (COST) — threat to the moat
Costco says it in its own risk factors: the way to grow converts one very productive box into two moderately productive ones.
Sales density this high is achieved partly by under-storing. A catchment that would support three ordinary supermarkets supports one Costco, which is why each box does $295 million a year. It also means that the obvious way to grow — open another one nearby — takes sales from the first.
Costco says so itself, in its own words: "We seek to expand in existing markets to attain a greater overall market share. A new warehouse may draw members away from our existing warehouses and adversely affect their comparable sales performance, member traffic, and profitability."1 Its management discussion adds that new openings bring "lower initial operating profitability relative to existing warehouses and cannibalization of sales at existing warehouses when openings occur in existing markets"2.
This is the arithmetic that bounds American growth. Costco operated 637 United States warehouses at the third quarter of fiscal 20263, and the remaining unserved catchments are, by definition, the ones it has already decided are too small — otherwise it would have built there. Adding units in served markets converts one very productive box into two moderately productive ones, which raises revenue and lowers the density that makes the model work.
The company's answer, visible in the filings, is that unit growth is running faster abroad, "due to the smaller base in those markets". Whether cannibalisation is winning shows up in comparable sales excluding fuel and currency in the United States: 7% in fiscal 2025 and 6% across the first thirty-six weeks of fiscal 20264. A sustained fall toward low single digits while unit growth continues would mean the new boxes are largely moving sales around.
- ReportedA new warehouse may draw members away from our existing warehouses and adversely affect their comparable sales performance, member traffic, and profitability." Its management discussion adds that new openings bring "lower initial operating...Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1A Risk Factors (U.S. and Canada 86% of net sales and 84% of operating income, California 26% of U.S. net sales, cannibalisation, tariffs, supplier and site-acquisition risk, 'high market expectations') — FY2025 · publ. October 8, 2025 · source ↗
- ReportedA new warehouse may draw members away from our existing warehouses and adversely affect their comparable sales performance, member traffic, and profitability." Its management discussion adds that new openings bring "lower initial operating...Costco Form 10-K, fiscal year ended August 31, 2025 - Item 7 MD&A (net sales $269,912M, membership fees $5,323M, gross margin 11.12%, SG&A 9.25%, comparable-sales composition, capital expenditure, dividends and repurchases) — FY2025 · publ. October 8, 2025 · source ↗
- ReportedCostco operated 637 United States warehouses at the third quarter of fiscal 2026, and the remaining unserved catchments are, by definition, the ones it has already decided are too small — otherwise it would have built there.Costco Form 10-Q, quarter ended May 10, 2026 - condensed financial statements and notes (total revenue $70,527M, operating income $2,815M, diluted EPS $4.93, balance sheet, segment table, 928 warehouses) — Q3 FY2026 and the first 36 weeks · publ. June 3, 2026 · source ↗
- ReportedWhether cannibalisation is winning shows up in comparable sales excluding fuel and currency in the United States: 7% in fiscal 2025 and 6% across the first thirty-six weeks of fiscal 2026.Costco Form 10-Q, quarter ended May 10, 2026 - MD&A (comparable sales +10% and +7% excluding fuel and currency, ticket +7% against frequency +2%, membership fees $1,373M, renewal 92.2% and 89.7%, gross margin 11.04%) — Q3 FY2026 and the first 36 weeks · publ. June 3, 2026 · source ↗