Costco Wholesale Corporation, the world’s third-largest retailer after Walmart and Amazon, has a wacky fiscal year that is out of sync with most retailers: Its FY23 ended 3 September and its annual report was released on 11 October. From close up, things look healthy and there’s no question that Costco is a great retailer with a model that will stand the test of time. Take a step back though, and some cracks are showing, as they inevitably will, even in a top business.Costco now operates 861 member warehouses (it added 23 new ones and relocated three in the last 12 months) in 14 countries, including four in Asia: Taiwan, Japan, Korea and China. Most (nearly 80 per cent) of the warehouses are owned by Costco itself, along with the land underneath. The average warehouse size is now 147,000 sq feet, and average sales per warehouse is $252 million. The company operates 692 gasoline stations adjacent to warehouses and has 316,000 employees.Membership fees to riseThe annual membership fee is $60, which has not changed in more than six years – but it is going up. Company CFO Richard Galanti has not been forthcoming about the timing of the increase, except to note on a conference call earlier in the year that the average gap between the last three membership fee increases was five years and seven months, a period that has now been exceeded. Also, with inflation easing, it would seem that a rise in the fee would be more palatable now to Costco’s customers. For these reasons an increase in the next few months has to be on the cards. Company membership count for fiscal 2023 was 71 million, up from 65,800,000 in the previous year. So even small increases in the fee move the needle on total revenue. Worldwide membership renewal rate in 2023 was 90.4 per cent, about the same as for 2022. Store growth Of the 23 new clubs opened in 2023, 10 were outside of North America. Store growth for Costco going forward will be focused more away from the US than domestically because of decreasing opportunities for expansion at home. Newer stores are not as productive as older ones, indicating that the concept is approaching saturation or already there in the US and Canada, where Costco has most of its locations. While the average store produced $252 million in net sales in 2023, stores that were opened in 2014 or before generated an average of $268 million. In contrast, the average productivity of stores opened over the past four years hasn’t exceeded $200 million, which might at least partly be a result of overlapping store trade areas. Costco then will be increasingly looking beyond its home base for expansion opportunities. It is helped by the fact that the concept of member-based retail is still something of a novelty in much of the world.  In Asia, member-based companies have in the past focused heavily or exclusively on wholesale customers. An example is Germany’s Metro Cash & Carry, which has now exited its Asian business after taking a crack in China, Japan, India and Vietnam. Thailand’s Central Retail is also going to have a go, quite literally, at the wholesale market. It is launching its Go Wholesale for food on Friday in Bangkok, after which it will open further units in Chiang Mai, Chonburi and Pattaya before the end of the year. This, too, will be member-based. On the retail front, there are also signs of a crack in the ice: A little over a year ago, Central Retail launched its Tops Club concept at Central Rama 2 mall in south Bangkok. This one definitely mimics elements of Costco, and more are planned. However, so far, these are small moves in the overall scheme of things, and Costco has a lot of white space to attack in the APAC region as a whole.  Costco’s 2023: a mixed bagNet sales in fiscal 2023 increased 7 per cent to $237.7 billion, with a 3 per cent increase in same-store sales (sales at stores open at least a year). Note, however, that the fiscal 2023 year was 53 weeks, versus 52 weeks in 2022. The 2023 result looks even more modest given that it came after net sales growth of 16 per cent and comparable store-sales growth of 14 per cent in fiscal 2022. Sales growth in 2023 was driven primarily by food and fresh food, which accounted for 54 per cent of sales. Sales of non-food items decreased 0.4 per cent, with big-ticket items in the home furnishing and electronics categories taking a significant hit. The company achieved an improvement in sales trends for these items toward the latter part of the year but demand was still soft. Outside of the US and Canada, net sales increased 9 per cent and same-store sales by 3 per cent. This came on top of 10 per cent net sales growth and 7 per cent comp-sales growth in 2022. The numbers for 2023 were, however, adversely influenced by currency and gasoline price fluctuations – with these stripped out, same-store sales growth was 8 per cent.  Membership revenue increased 8 per cent to $4.6 billion, driven not only by new members but also upgrades of existing memberships to Executive level. Total revenue was $242.3 billion, of which $32.6 billion was outside the US and Canada. Revenues outside of the US and Canada were, therefore, 13.4 per cent of the total, compared with 13.2 per cent in 2022. Gross margin was up slightly, to 10.57 per cent. Net income increased 8 per cent to $6.3 billion. E-commerce Costco keeps only about 4,000 SKUs in stores because it can keep prices lower and attract more customers by offering a narrow choice of labels across a broad range of categories (as opposed to the often numerous redundant choices offered in a typical general merchandise store). About 10,000 SKUs are offered online, but e-commerce still represents only 6 per cent of company net sales, which, for perspective, is less than half the proportion at Wal-Mart. In fiscal 2023, e-commerce sales declined by 5 per cent. Costco customers love the big warehouses, but e-commerce cannot be ignored and this is an area where the company has some work to do.