Costco

Costco Wholesale Corporation

Company type	Public (Nasdaq: COST)
Industry	Retail (Warehouse Club)
Founded	1983 (Seattle, Washington)
Headquarters	Issaquah, Washington
Key people	James Sinegal, Founder & CEO Jeffrey Brotman, Founder & Chairman Richard Galanti, CFO Dick DiCerchio, COO
Products	Retail (Specialty) Private Label - Kirkland Signature
Revenue	$60.2 billion USD (2006)
Operating income	6,708,000,000 United States dollar (2021)
Net income	5,844,000,000 United States dollar (2022)
Number of employees	132,000
Website	Costco U.S. Costco Canada

Costco Wholesale Corporation (Nasdaq: COST) is the largest membership warehouse club chain in the world based on sales volume, headquartered in Issaquah, Washington, United States, with its flagship warehouse in nearby Seattle. Costco's Canadian operations are based near Ottawa, Ontario, and Vancouver, British Columbia.

History

Founded by James Sinegal and Jeffrey Brotman, Costco opened its first warehouse in Seattle, Washington on September 15, 1983. Sinegal began by working for Sol Price at both FedMart and Price Club. Brotman, an attorney from an old Seattle retailing family, was also involved in retailing from an early age.

Costco’s business model was similar to that of Price Club, which was founded by Sol and Robert Price in 1976 in San Diego, California. Both companies charged a membership fee and catered primarily to small-business owners.

The two retailers were similar in size when they merged in 1993; thus, the combined company, PriceCostco, was effectively double the size of each of its parents. At that time, PriceCostco had 206 locations generating $16 billion in annual sales.

PriceCostco was initially led by executives from both companies, but then Sol and his son Robert Price founded Price Enterprises and left in 1994. The company changed the name to Costco Wholesale in 1997.

Costco today

Patrons entering a Costco warehouse club.

The main competitor in the membership warehouse space is Sam's Club. Although Sam's Club has more warehouses than Costco, Costco has higher total sales volume. Costco employs about 132,000 full- and part-time employees, including seasonal workers, and for fiscal year 2006, ended on September 3, 2006, the company's store sales totaled $60.2 billion of which $1.1 billion was net profit. Costco is #32 on the Fortune 500.

As of May 5, 2007, Costco has 510 locations:

• 376 in the United States and Puerto Rico
• 71 in Canada
• 30 in Mexico (50-50 joint venture)
• 19 in the United Kingdom
• 5 in South Korea
• 5 in Japan
• 4 in Taiwan

In the United States, Costco is closed on New Year’s Day, Easter, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.

In India, Costco is exploring a joint venture entry into the heavily regulated wholesale retail sector with Bombay Dyeing Ltd. The discussions are on nascent stage. It is difficult to gain foot hold in India's retail market due to tough regulations.

Other retail formats

Costco currently operates two other retail formats, a home furnishings concept known as "Costco Home," and a strictly business operation known as "Costco Business Center."

There are currently two Costco Home locations (Washington State & Arizona, both in former HomeBase warehouse stores) with plans for a third on the west coast. Costco membership is required, and hours of operation are identical to that of regular Costco warehouses.

There are a handful of Business Centers, all of which offer delivery via a private fleet of trucks. Some locations have a retail selling floor open to Costco members who wish to shop in person, while others are strictly delivery only.

Plans for Costco Fresh, a gourmet supermarket, were shelved in 2004.

Sales model

Typical Costco warehouse interior

Costco focuses on selling products at low prices, often at very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Costco is only open to members and their guests, except for purchases of liquor and gasoline in some U.S. states due to state law; and prescription drugs due to federal law. Memberships must be purchased in advance; in the United States the lowest cost membership costs $50 for one year (as of May 5, 2007). Purchases made at Costco's website do not require a membership; however, a 5% surcharge is added to purchases made by non-members. Purchases made with Costco Cash Cards also do not require a membership, and there is no surcharge. To avoid credit card processing fees, Costco only accepts American Express (not in the UK), PIN-based debit cards (Interac in Canada), cash, and checks. Guests of members are not allowed to pay by check.

File:Cartes Costcos.JPG

Costco has 3 levels of membership: "Gold Star," "Executive," and "Business." («Privilège,» «Exécutif,» et «Affaires» en français au Canada)

Lighting costs are reduced on sunny days, as most Costco locations have several skylights. During the day, electronic light meters measure how much light is coming in the skylights and turn off an appropriate percentage of the interior lights. During a typical sunny day, it is very common for the center section of the warehouse to have no interior lights burning.

Most products are delivered to the store on shipping pallets, and the pallets are used to display products for sale on the retail floor. This contrasts with other retailers that break down pallets and stock individual products on shelves. Costco caps its profit margin on most products at 14% or 15%, but generally limits price markup on products from 8%-10%.

Costco Cash Cards

Costco Cash Cards can be purchased in the warehouse and members can load them with money to make non-cash purchases at all Costco warehouses in the United States. Because Costco gas stations take only Costco Cash, debit cards, and American Express, people who normally pay for gas by check or cash must purchase a Costco Cash Card inside the actual Costco building before filling up.

Products

A food concession stand at the Costco warehouse in Mountain View, California

Over the years, Costco has gradually expanded its range of products and services. Initially it preferred to sell only boxed products that could be dispensed by simply tearing the shrinkwrap off a pallet. It now sells many other products that are more difficult to handle, such as fresh produce, meat, dairy, seafood, fresh baked goods, flowers, clothing, books, software, home electronics, jewelry, art, hot tubs, and furniture. Many stores have tire garages, pharmacies, hearing aid centers, optometrists, photo processors, and gas stations.

Some locations have liquor stores, often kept separate in order to comply with liquor license restrictions. In some states (such as Texas), the liquor store must be owned and operated by a separate company with separate employees. In 2006, Costco won a court decision against the state of Washington allowing it to purchase wine directly from the producer, bypassing the state retail monopoly.

Costco also acts as an investment broker and travel agent. They have also introduced an automobile purchasing program where members can purchase new cars at specially arranged prices. They also have an agreement with Ameriprise for auto and home insurance.

Kirkland Signature

File:Kirkland logo.gif

Kirkland Signature logo

Kirkland Signature is Costco's store brand, otherwise known in the retail industry as an "own-brand." It is found exclusively at Costco stores and is trademarked by the company. The name derives from the fact that Costco's corporate headquarters were located in the city of Kirkland, Washington between 1987 and 1996.

Costco offers a variety of products under the Kirkland Signature name at a discount, from clothing and electronics to dairy products and more.

Store brands have historically struggled to gain consumer confidence. According to Costco, it approached a strategy much different than how most supermarkets handled price points. The traditional method for offering a product on special, is to reduce volume, quality, etc in order to even out losses. The Kirkland Signature brand in contrast, maintains the quality of the product, allowing the price to remain above competitor brands if their prices dip. The strategy here is to build consumer confidence through high quality so that consumers will remain loyal despite difference in price. In general however, the Kirkland Signature brand prices products below the average national brand making it popular among consumers. [1]

To counteract the consumer confidence problem common in store branding, Kirkland Signature sometimes relies on Co-branding. According to Costco, while consumers may be wary of same-store-branding, they are less likely to be wary of brands that they are familiar with and trust. [2]

Trivia

• The very first Price Club location was an old airplane hangar, and is still in operation today (Warehouse #401 San Diego).
• The price of a kosher hot dog and a soft drink at the food court is still $1.50, the same as it was when (pre-merger) Costco first opened in 1983.

• Prior to the 1993 Price Club/Costco merger, Wal-Mart founder Sam Walton wanted to merge Sam's Club with Price Club.

• In 2006, former Buckingham Nicks drummer Gary Hodges and bassist Tom Moncrieff helped form a rock band named Sinai 48 after the Kosher Polish hotdogs sold in the Costco food court. The four member band consists of three members of Hebrew descent.

Working at Costco

While some former Price Club locations in California and the northeastern United States are staffed by Teamsters, the majority of Costco locations are not unionized. The non-union locations have revisions to their Costco Employee Agreement every three years concurrent with union contract ratifications in locations with collective bargaining agreements. Similar to a union contract, the Employee Agreement sets forth such things such as benefits, compensations, wages, disciplinary procedures, paid holidays, bonuses, and seniority. As of March 2007, non-supervisory hourly wages range from $11.00 to $19.50.

There are a few types of jobs available at Costco, ranging from no physical work to complete hands-on physical labor. For example, a stocker's duties require heavy lifting, bending, and large amounts of walking for an 8-hour shift. On the other hand, someone in the "member service" department (checking receipts at the door and greeting members as they walk into the building) requires little movement, minimal lifting, and is more geared towards customer service and customer relations. Therefore, an 85-year-old person checking cards at the door could be employed at the same pay rate as a 18-year-old stocking pallets. Each Costco warehouse begins its day at 4:00 AM, with stockers and forklift drivers replenishing the "sold-down" stock on the floor. At 6:00 AM the warehouse is buzzing with forklifts and workers racing to stock the "foods" section and "hardlines" section (non-foods items and electronics). At 10:00 AM each warehouse opens. The warehouse closes at 8:30 PM on weekdays and at 6:00 PM on weekends. The cycle repeats itself each day. The amount of effort required to recover the warehouse from a busy sell day is extraordinary, but working as team is what separates Costco from other retail outlets. Chairman Jeff Brotman has stated, "If you hire good people and pay them good wages, then good things will happen."

Costco's merchandising team is highly regarded in industry for their ability to offer a no-frills display of product without elaborate signs or shelving, yet still selling massive amounts of product. Essentially it is the freshness and uniqueness of the product selling itself.

Product-demonstration (e.g., food samples) employees are employed by an outside company.

See also

• Sam's Club
• BJ's Wholesale Club

External links

• Official website
• Costco Canada, in English and French
• How Costco Became the Anti-Wal-Mart - NY Times
• Why Costco is so addictive