Selling a product at or below profit margins to get shoppers in the door—a so-called loss leader—is a retail strategy as old as Thanksgiving turkeys. But it only works if the customers buy other things. At Costco last quarter, many didn’t: Shoppers instead stuck to the cheap groceries, specifically meat, that the giant warehouse club uses to attract them.
Costco sales rose 6 percent, to $25.8 billion, and yet profit dropped 15 percent, to $463 million, in part because customers didn’t buy as many high-margin electronics such as cameras and computers. The company’s operating margin dipped from 3 percent, to 2.8 percent, which is a big deal for an enterprise of Costco’s size.
