Navigating the Consumer Divide: Costco and Ross as Retail Benchmarks

Costco and Ross Stores are retail stocks that serve as useful indicators of consumer spending patterns. Costco's premium pricing power has led to a 220% total return in the last five years, while Ross Stores offers value-oriented pricing power to budget-conscious consumers. Both stocks have delivered solid returns, with Costco's stock price at over 54x forward earnings and Ross Stores' stock price at over 72% in the last five years. The two stocks cater to different consumer segments, making them useful to investors looking to diversify their portfolios.

As retail earnings season commences, investors are closely monitoring the state of consumer spending, particularly as the Federal Reserve's interest rate hikes widen the gap between low- and middle-income consumers and high-income consumers. Two retail stocks, Costco Wholesale Corp. (NASDAQ: COST) and Ross Stores Inc. (NASDAQ: ROST), serve as useful barometers for understanding consumer behavior and pricing power.

Costco's Premium Pricing Power

Costco, known for its premium pricing model, has been a stellar performer over the past five years. The company's stock has delivered a total return of over 220% since August 2020, with a $10,000 investment growing to over $32,000. This strong performance is driven by Costco's business model, which includes an annual membership fee providing stable revenue and a gross margin of 11.25%. The company's ability to "trade up" consumers to bulk and premium products, coupled with a high worldwide retention rate for its membership, has contributed to its success. Analysts project continued revenue and earnings growth, justifying the stock's premium valuation at over 54x forward earnings.

Ross Stores' Value-Oriented Pricing Power

Ross Stores, on the other hand, caters to budget-conscious consumers seeking value. The company's first-quarter earnings report for fiscal year 2026 anticipated some pressure on earnings due to tariffs, but analysts remain optimistic about its fundamentals, including solid traffic, comparable store sales growth, and margin expansion. Ross Stores' stock has delivered a total return of over 72% in the last five years, with a consensus price target of $159.40. The company's ability to satisfy the "treasure hunt" consumer who seeks value above all else has been a key factor in its success.

Diversification Opportunities

Investors often hear about the importance of diversification, and Costco and Ross Stores offer distinct business models that cater to different consumer segments. Costco's membership-driven model appeals to higher-income households looking for value, while Ross Stores' off-price retailing attracts budget-conscious consumers. Both stocks have delivered solid returns, making them useful additions to a diversified portfolio.

HighTower Advisors' Stake in Ross Stores

HighTower Advisors LLC recently increased its holdings in Ross Stores by 26.6%, acquiring an additional 4,152 shares, bringing their total to 19,734 shares valued at approximately $2.52 million. This move underscores investor confidence in Ross Stores' ability to navigate tariffs and other challenges, as the company reported earnings per share (EPS) of $1.56 for the recent quarter, exceeding analysts' expectations of $1.54.

Conclusion

Costco and Ross Stores serve as valuable indicators of consumer spending patterns in a high-interest-rate environment. While Costco's premium pricing power has driven significant returns, Ross Stores' value-oriented model appeals to budget-conscious consumers. Both stocks offer diversification opportunities for investors, making them useful additions to a well-rounded portfolio.

References:
[1] https://www.ainvest.com/news/ross-stores-q2-performance-implications-discount-retail-resilience-2508/
[2] https://www.inkl.com/news/costco-and-ross-2-ways-to-play-the-consumer-divide
[3] https://www.marketbeat.com/instant-alerts/filing-hightower-advisors-llc-acquires-4152-shares-of-ross-stores-inc-rost-2025-08-23/