Costco Wholesale Corporation (NASDAQ: COST), simply known as Costco , is the largest membership warehouse club chain in the world based on sales volume. As of 2008 it is the fifth largest general retailer in the United States.
Location
Costco is headquartered in Issaquah, Washington, United States and was founded in Kirkland, with its flagship warehouse in nearby Seattle. They also have locations in Australia, Canada, Mexico, Taiwan, South Korea, Japan, and the United Kingdom.
History
Founded by James (Jim) Sinegal and Jeffrey Brotman, Costco opened its first warehouse in Seattle, Washington, on September 15 , 1983 . Sinegal had started in wholesale distribution by working for Sol Price at both FedMart and Price Club. Brotman, an attorney from an old Seattle retailing family, had also been involved in retail distribution from an early age.
In 1993, Costco merged with Price Club (called Club Price in the Canadian province of Quebec). Costco’s business model and size were similar to those of Price Club, which was founded by Sol and Robert Price in 1976 in San Diego, California. Thus, the combined company, PriceCostco, was effectively double the size of each of its parents. Just after the merger, 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.
Prior to the 1993 Price merger, Wal-Mart founder Sam Walton wanted to merge Sam's Club with Price Club.
The first Price Club location was an old airplane hangar, previously owned by Howard Hughes, and is still in operation today (Warehouse #401 San Diego).
In 1997, the company changed its name to Costco Wholesale.
Costco today
In the United States, the main competitors operating membership warehouses are Sam's Club and BJ's Wholesale Club. Although Sam's Club has more warehouses than Costco, Costco has higher total sales volume. Costco employs about 142,000 full- and part-time employees, including seasonal workers. It has 57 million members. For fiscal year 2009, which ended on August 31, 2009, the company's sales totaled $71.42 billion, $1.09 billion of the revenue was net profit. Costco is #29 on the Fortune 500. The ACSI (The American Customer Satisfaction Index) named Costco number one in the retail industry with a score of 81 in 2006.
In the United States, Costco is closed on the following holidays (most other major retailers stay open on all of these dates except Thanksgiving and Christmas):
- New Year's Day
- Easter
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving
- Christmas
Costco became the first company ever to grow from zero to $3 billion in sales in less than six years.
Other wholesale formats
- Costco Business Center
There are a growing handful of Costco Business Centers, all of which offer delivery via a private fleet of trucks. Some locations have a warehouse selling floor open to Costco members who wish to shop in person, while others are strictly delivery only. A new Business Center, converted from an existing Costco location, opened in Las Vegas, Nevada in early 2009. Two additional locations are slated for California in the first half of 2009.
- Costco Home (defunct)
The first Costco Home warehouse debuted in 2002 in Kirkland, Washington. The warehouse's concept was to combine the value, setting and members-only elements of Costco's warehouse clubs with the product array one would find at an upscale home store, such as Fortunoff or Crate & Barrel. The Costco Home warehouses sold furniture, housewares, kitchen products and accessories from higher-end brands such as Lexington, Ralph Lauren and Waterford in a warehouse-club setting. Costco claimed that, similar to its main warehouses, it accepted lower margins in return for greater volume and overhead.
Over time, the concept was adjusted to include home electronics, some major appliances, office furniture, and a large selection of outdoor furniture and window treatments.
On April 2, 2009, the company announced that it would be abandoning its Costco Home concept, closing the two existing stores in Kirkland, WA and Tempe, Arizona on July 3, 2009, and abandoning plans for a third store on the West Coast. The company cited cutbacks in consumer spending on home products and its interest in focusing on its core business as the main reasons.
- Costco Fresh (defunct)
Plans for Costco Fresh, a gourmet supermarket, were abandoned in 2004.
Sales model
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. Furthermore, Costco does not carry multiple brands or varieties where the item is essentially the same except when it has a house brand to sell, typically under the Kirkland Signature label. This results in high volume of sales from single vendor, allowing further reduction in price, and reducing marketing costs. If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product. For example, on November 16th, 2009, Costco announced that it will stop selling Coca-Cola products due to the soft drink maker refusing to lower its wholesale prices. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors.
Currently membership fees at Costco are $50 per year for Goldstar and Business Memberships, which can be upgraded to Executive membership for an additional $50 per year. Along with the additional benefits the executive membership has (e.g. car purchasing savings, home loans, car insurance, check printing services) executive members also receive an annual "2% Rewards Check" of up to $500.00 from Costco on all purchases made, excluding select items such as gasoline, alcohol, and tobacco.
In the UK, membership is £20.00 for Trade membership (plus VAT) which includes a card for a spouse. People who work for the National Health Service or any other government employee are entitled to an individual membership, which costs £25.
In Australia, membership is AUD$55.00 a year for a business membership, or AUD$60.00 a year for a Goldstar membership.
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 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. Canadian and United States Costco locations only accept American Express, PIN-based debit cards (Interac in Canada), cash, and checks. Guests of members are not allowed to write checks. American Express is the only accepted credit card (in the United States and Canada) because they charge Costco very low interchange fees (a percentage of revenue from total sales made); as Costco's margins are low in comparison to other retailers, they cannot accept the fee without raising prices.
In the UK credit cards are not accepted at all, and customers must pay by cash or debit card.
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 powered on.
Most products are delivered to the warehouse on shipping pallets and these pallets are used to display products for sale on the warehouse floor. This contrasts with retail stores that break down pallets and stock individual products on shelves. Costco limits its price mark up on items to 15%.
Food service
Most Costco locations have either a food court or a hot dog cart. Both offer a quarter-pound 100% beef hot dog or Polish sausage and 20 fluid oz drink (with free refill) for $1.50, the same price as when (pre-merger) Costco opened in 1983. Pizza is also available in most locations as cheese, pepperoni, or combination. Frozen yogurt is also served in chocolate, vanilla, or swirled together. Also offered are very berry smoothies, mocha latte freezes, chicken bake sandwiches, turkey wraps, twisted churros, and chicken caesar salad. French fries are also offered in
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