Costco is a name that has become synonymous with savings, quality, and buying in bulk. This membership-based warehouse club retail chain has made a name for itself by offering a wide variety of merchandise at discounted prices in a no-frills, treasure hunt shopping environment. But what exactly is Costco, what makes it so unique, and why has it become such a retail powerhouse? Let‘s take a closer look.
Costco by the Numbers
To fully grasp Costco‘s size and impact, here are some key statistics and figures:
- Costco operates 804 warehouses worldwide, including 558 in the United States and Puerto Rico, 103 in Canada, 39 in Mexico, 29 in the United Kingdom, 27 in Japan, 16 in Korea, 14 in Taiwan, 12 in Australia, 3 in Spain, 1 in Iceland, 1 in France, and 1 in China (as of 2021)
- Costco has over 111 million total cardholders (as of 2021)
- Costco‘s annual revenues exceeded $192 billion in 2021
- Costco‘s average sales per warehouse is over $200 million annually
- Costco is the world‘s 5th largest retailer and the world‘s largest retailer of choice and prime beef, organic foods, rotisserie chicken, and wine
- 1 in every 4 automobiles in the United States is serviced by Costco
- Costco‘s average member renewal rate is 90% in the U.S. and Canada and 88% worldwide
- Executive Members make up 38% of members but account for over 70% of total sales
- Costco‘s Kirkland Signature private label brand accounts for roughly 25% of total sales and spans over 364 individual products
These staggering numbers showcase Costco‘s vast reach and influence. Even with a relatively small number of stores compared to some retail competitors, Costco drives massive sales volume and commands intense customer loyalty.
What Sets Costco Apart?
Several key factors differentiate Costco from other retail chains and contribute to its success:
Paid Membership Model
The biggest differentiator is that shopping at Costco requires paying for an annual membership ($60 for Gold Star and Business or $120 for Executive as of 2021), whereas most other retailers are open to the general public. This membership requirement provides a reliable, recurring revenue stream and motivates members to shop frequently to maximize their membership value. Costco makes about 75% of its profits from membership fees rather than product markups.
Limited Product Selection
While most retailers emphasize wide product variety, Costco purposefully limits its assortment to around 4,000 SKUs (distinct products) at any given time. Limiting selection allows Costco to drive larger volume purchases and rapid inventory turnover. Costco aims to stock only top-quality products and the most popular brand names in each category, which simplifies the shopping experience.
For example, Costco may only carry two brands of ketchup versus a dozen or more at a typical supermarket. Costco supplements big brands with its own Kirkland Signature label, which is known for quality. By focusing on a smaller number of proven, fast-moving items, Costco can sell products before they ever hit the shelves and limit costly inventory holding.
No-Frills Warehouse Environment
Costco locations look more like industrial warehouses than typical retail stores. Merchandise is often displayed on pallets or steel shelving with minimal decor or signage. This bare-bones presentation enables Costco to save money on labor and visual merchandising costs.
Costco also has virtually no advertising budget, instead relying on word-of-mouth buzz, direct mail coupon books, and its own email marketing and social media channels to get the word out about deals. These cost savings all flow through to lower prices for customers.
Constant Product Rotation and Treasure Hunt Excitement
While Costco‘s regular selection stays relatively stable, the chain constantly rotates in special one-time deals and seasonal items that create urgency and inspire frequent visits. Costco‘s famous wooden pallet displays at the front of each warehouse showcase an ever-changing array of limited time offers on everything from electronics and jewelry to furniture and clothing.
These surprise finds encourage a "treasure hunt" mentality and a sense that if you don‘t buy it now, you might miss out. Many customers stop in to see what‘s new and leave with a cartful of impulse buys. Category buyers are given more freedom than at many chains to take chances on unique products.
Emphasis on Quality and Value
Across both its Kirkland Signature private label and mainstream branded products, Costco is known for delivering exceptional quality at competitive prices. Costco has strict quality control standards and is willing to discontinue relationships with suppliers who don‘t meet them.
Many Kirkland Signature products are produced by the same manufacturers who make the leading name brands, often with nearly identical specifications but a lower price tag. Costco is also increasingly emphasizing organic, healthy, and premium options to elevate its reputation and appeal to a broader spectrum of shoppers.
Superior Customer Service and Satisfaction
Costco ranks at or near the top of most customer satisfaction surveys and brand reputation rankings thanks to its generous return policy and attitude of putting members first. Costco has a risk-free 100% satisfaction guarantee and will accept returns on most items (including electronics) indefinitely with no questions asked.
Costco is also known for paying its employees significantly more on average than other retailers and offering better benefits, which leads to lower turnover and more knowledgeable, motivated workers. Happy employees create happy customers and positive word of mouth.
Adapting to a Changing Retail Landscape
While Costco has stayed true to many of its core principles over the years, it has also evolved to stay relevant in a rapidly shifting retail industry. Some key ways Costco has adapted include:
E-Commerce and Mobile App Development
Long a brick-and-mortar focused business, Costco has invested heavily in e-commerce capabilities in recent years to supplement the in-store experience. Costco.com now offers thousands of items (beyond what‘s available in warehouses), 2-day delivery on most orders, and same-day delivery through Instacart.
Costco also introduced CostcoGrocery for same-day delivery of perishables and sundries. The Costco mobile app allows members to make purchases, access exclusive online deals, clip digital coupons, and track their spending.
More Health-Focused and Organic Offerings
As consumers have become more health-conscious, Costco has adapted its signature departments to include more organic produce, antibiotic-free meats, alternative milks, and gluten-free products. Costco is now the largest seller of organic goods in the United States.
Smaller Pack Sizes and Grab-and-Go Items
While large bulk packaging remains a Costco hallmark, the chain now offers more variety in sizes to cater to smaller households. Costco has also expanded its selection of ready-to-eat and grab-and-go deli, bakery and prepared meals to appeal to convenience-oriented shoppers.
Partnership with Instacart for Grocery Delivery
In addition to its own e-commerce offerings, Costco has partnered with Instacart to provide same-day grocery delivery in most markets. This allows Costco to compete with Amazon/Whole Foods, Walmart, and regional supermarket chains offering similar services.
Experiential Offerings and Services
Costco has added more experiential departments like food courts, hearing aid centers, optical centers and gas stations to its warehouses over the years to drive traffic and make the in-store experience more valuable. Costco also offers a wide range of services like auto and home insurance, mortgage lending, and identity protection to increase the utility of membership.
Costco‘s Competitive Position
Costco‘s main rivals are other membership-based warehouse clubs like Walmart-owned Sam‘s Club and BJ‘s Wholesale Club. Among these, Costco is the largest and most profitable.
Costco also competes with discount store chains like Walmart and Target, supermarkets like Kroger, specialty big-box retailers like Best Buy or Home Depot in certain categories, and increasingly with e-commerce players like Amazon. Costco has continued to post strong sales and membership renewal numbers in the face of this intense competition.
Compared to Walmart and Amazon in particular, Costco occupies a slightly more upscale, quality-focused niche. Costco wins on shallower selection of top brands and generous service, while Walmart and Amazon compete on the widest product variety and lowest absolute price.
A typical Costco member has a higher average household income than a Walmart shopper. Costco operates about five times fewer stores than Walmart but does almost as much sales volume per square foot.
Costco‘s Positive Reputation and Impact
In addition to its reputation for quality, value, and customer service, Costco is also known for being a good corporate citizen:
- Costco has consistently been ranked as one of the top companies to work for thanks to its higher-than-average pay, good benefits, and positive culture. Costco raised its minimum wage to $16/hour in 2021.
- Costco has been recognized by the EPA for its leading sustainability practices, including energy efficient warehouses, solar power installations, and recycling programs.
- Costco is active in philanthropy and community impact through the Costco Wholesale Charitable Giving Fund, which contributes to a variety of charitable causes, as well as direct product and monetary donations to local nonprofits and community organizations.
This positive reputation and commitment to social responsibility further engenders customer loyalty and employee pride.
The Future of Costco
Retail competition and the shift to e-commerce will continue to present challenges for Costco, but the company seems well-positioned for further growth thanks to its unique model and strong execution.
Potential areas for expansion include:
- New warehouse development in the U.S. and internationally
- Enhanced e-commerce and omnichannel capabilities
- Continued emphasis on fresh foods and private label development
- Further personalization and customization via customer data
- Expansion of services, experiences and value-adds for members
As long as Costco continues to deliver on its brand promise of quality and value, many industry observers expect the chain to continue thriving and outperforming in the years to come.
