Since its opening, Costco has expanded to become a global powerhouse in the retail business. It is not only dedicated to providing quality products at the best value, but their formula has proven to be very successful. How do they do it? Here are 10 Mind Blowing Facts about Costco Wholesale.
10. Membership is Golden
Did you know that unlike many other retailers, Costco rarely makes a huge profit off the merchandise it sells? They do make a small margin of profit by marking-up products from 8-10% over their cost. Some Kirkland Signature brands are marked up even further at 15%. After deducting expenses such as real estate costs and employee wages, Costco actually just breaks even. The founder once said, that his secret was simple, but was reluctant to talk about it for fear of appearing idiotic. His bottom line was to sell things as cheap as possible; that has always been Costco’s mission statement. But we all know that what truly drives Costco’s profits up is their memberships. Eighty percent of the company’s gross profit actually comes from the membership fees alone from its 64 million members. Costco’s annual profits are roughly $1.5 billion annually. Costco boasts a 90% membership-renewal rate in the US. That’s a lot of customer satisfaction and the main reason why Costco continues to have such a devoted following. Those memberships are a gold mine.
9. Kirkland Signature is named after a city
Did you ever wonder why Costco named their private label and most popular brand of products Kirkland? Well the answer is because Costco’s first corporate headquarters was situated in Kirkland, Washington. The headquarters eventually moved to Issaquah, Washington, but the name stuck. Kirkland Signature, the company’s private label, was introduced in 1995. It makes up about 15% of the store’s product line and it’s a known fact that the product line is comparable and even at times better than most popular brands. The Kirkland Signature label accounts for almost a third of Costco sales. The idea came about when some suppliers wouldn’t lower the cost of their products, making it impossible for Costco to give its customers a discount. Costco wanted to be able to provide the lowest prices to its consumers and came up with their signature brand. Costco continues to come up with new products and their Kirkland Signature occasionally co-brands. This marketing strategy involves placing multiple brand names on a product, with various logos, color schemes and brand identities. This combines the strengths of the two brands and increases sales for Costco and in the end everyone is happy.
8. Horse & Buggy
Even though Costco is perceived as modern when it comes to big warehouse shopping in this age of tech, they do have a few clients in Lancaster, Pennsylvania that still live as if it’s 1820. Yes, parts of Pennsylvania are known as Amish Country. This Costco not only caters to country and city folks but also to the large Amish population that live nearby. Costco is not only price conscious, but also respectful and considerate towards the Amish community who shop there frequently. Drive into the parking lot of this Costco and you’ll be doing a double take. They have designated horse and buggy parking stalls at the entrance of the store. Of course, not all of the parking lot spaces are horse stalls, they do have parking for cars. The horse shelters have rails to tie up the horses so they don’t get loose and run around in the parking lot, and roof shields to shelter them from bad weather. Contrary to some beliefs about Amish people, they also need to shop. You would be surprised to see what they have in their carts. They too buy bags of Doritos and cheese balls, cases of Mountain Dew and Coke. Yep, even the Amish people need to get their snack fix.
7. Employees are Everything at Costco
Costco is known to have a terrific workplace environment. It has a labor force of about 245,000 employees who work either full-time or part time jobs. The average Costco employee gets paid about $21.00 dollars an hour. More than 80% of the employees at Costco have health insurance and retirement plans. Costco employees rarely quit their jobs. Turnover rate for those who have been there for over a year is 5%. The turnover rate of Costco executives is even lower at 1%. Employees also have plenty of other perks, like being able to shop at the store after hours. Most warehouse employees usually work 5 days per week, or 24 hours a week, part-time. Most shifts are 4-5 hours instead of eight hours and many employees appreciate the work/life balance. Costco does this for those who have either long commutes or have to pick up kids at daycare. Costco also loves to promote staff from within. Seventy percent of its warehouse managers either started out as cart pushers or cashiers. Another little tidbit, Costco doesn’t have a public relations department. They do not believe in one. Which is an anomaly, because most companies never work that way. Talk about confidence!
6. Costco Connection Magazine
Costco also has their own dedicated magazine called The Costco Connection. Its circulation is about 14.3 million copies, one of the largest print publications in the United States! It is solely geared towards its Executive Members and is basically free for those who spend $120.00 dollars on an annual membership. Don’t fret, you can view it online for free if you are a non-member, you just won’t get a copy delivered to your door. Costco basically uses the magazine to keep members hooked to their yearly subscription, with some other perks, of course. The magazine is great, it features articles about the latest events, cooking, recipes, travel offers, auto services, electronics and even book reviews. Many of their ads focus on their in-house Kirkland Signature Brand, but other labels, too. There’s also a range of home, health and lifestyle articles. The magazine targets its Executive members mostly because they are the bigger spenders and shop more frequently than other members. They also make up 40% of Costco’s total membership base. The magazine not only gives members a sense of being part of the Costco culture, it alerts them to products and services, promotes new ideas and gives them first-hand knowledge on what is coming up. The magazine also drives sales by 30%, as most of the magazine’s subscribers buy a product after they have seen it advertised in the magazine.
5. Triggers and Treasures
Costco has 762 warehouses worldwide, in 11 countries, and it keeps going strong. The average size of a Costco warehouse is about 145,000 square feet, with some newer warehouses being a little larger. The largest is in Salt Lake City Utah, at 235,000 square feet. But all that space does not necessarily translate to more products. In fact, the typical Costco warehouse only stocks about 4,000 types of items. In contrast to the average supermarket which sells about 40,000 types of items. Walmart stocks about 125,000 types of products. So, what is it with Costco and its selection? You would think they would have a plethora of items to choose from; the more the better, right? Well, this is a deliberate strategy by Costco. The Costco belief is that you don’t need too many choices. They have done all the thinking for you and have chosen the best products at the best price. They are very good at getting wholesale bargains, which they then relay back to you. Three-quarters of Costco’s products are what it calls “triggers”, staples such as paper towels, detergents, and cereals. The remaining one-quarter are “treasures”, items that make shopping an adventure. Another strategy that Costco uses is to frequently change up the items offered or sometimes completely discontinuing products altogether. One day it’s there and another day it’s gone, possibly for good. This creates a sense of urgency to purchase more products. This concept is thrilling for some; it’s called the “Costco effect”. It keeps you hooked and sometimes it gets you to buy more than you really want to spend.
4. Prime Beef
Did you know that Costco is one of the largest meat purveyors in the world? It sells $4.5 billion dollars worth of meat every year and another $4 billion worth of produce. Costco has some of the best cuts, even though it is packaged to feed an army. While Costco does well in this market, their prices tend to be much higher than at any local grocery store, mainly because you are buying in bulk. Costco’s Vice President of Meat Operations, Charlie Winters, got his start working for his family’s slaughter house in Minnesota, he was the pioneer behind Costco’s popular meat department and prides himself in selling only the best. Costco does indeed sell USDA approved prime beef, which is what you find in most top steakhouses, but it’s hard to find in your local supermarkets. But buyer beware, it is very expensive. Costco also blade-tenderizes most of their steaks, at least the ones sold under the Kirkland label. Also, rumor has it that their bacon is one of the best and tastes better than most generic brands, it is also cheaper. If cooking is not your thing, you’ve gotta try the rotisserie chicken at $4.99. They are the best. Costco sells over 100,000 of them every day – more than 37 million a year!
3. Costco loves Nuts
Did you know that Costco buys half the world’s supply of cashews? Costco sells $300,000 dollars worth of them every week. Cashews are mostly native to Brazil, but these days you can find them growing in many other parts of the world. Costco sources its cashews mainly from Africa and Vietnam. They not only sell cashews, but all kinds of nuts, such as almonds, pistachios, pecans, walnuts, pine nuts, and even macadamia nuts at very affordable prices compared to most retailers. Costco also sells them in bigger quantities compared to other retailers. If you haven’t noticed, Costco’s cashew containers are also square and not round. They do this in order to maximize space on pallets. When they switched to square containers, they reduced some 400 truck trips shipping the product to its warehouses every year across the country. If your favorite nut brand does not come packaged in plastic containers, you could probably find them in 2 pound Kirkland Signature Brand bags. Costco is known for carrying high quality nuts, so you will never make a bad investment. They are always fresh and of the best quality for the price point. If you are worried about buying nuts in bulk and them going rancid on you, freezing them will extend shelf life. You can make lots of pecan pies and give them out to your neighbors. They will love you for it!
2. Howard Hughes Connection
Costco’s beginnings actually start several years before there ever was a Costco. It all began with Sol Price and his son, Robert, who opened their first store in San Diego, California in 1976. It was supposed to be a new concept in large retail warehousing. The large warehouse was located on Moreno Boulevard in six old airplane hangars previously owned by Howard Hughes. Yes, the wealthy, reclusive, eccentric business tycoon. It became known as Price Club Warehouse #401, and is still in operation today, though the name is now Costco Warehouse #401. The idea came about after Price was forced out of a chain of discount department stores that he founded called FedMart. He came up with the idea shortly afterwards and drew up the concept of a warehouse-type store on a paper napkin. He then got some of his friends to invest the $1.25 million dollars needed to start up Price Club. At the time, it mainly catered to small businesses who could invite non-business members or friends to shop with them for better prices. The first week upon opening, sales were very disappointing. To try and remedy this, Price suggested his employees park near the entrance to make it look like there were more customers. It paid off, as sales improved and Price Club was off and running.
1. The Merge
Costco opened its first warehouse in Seattle, Washington in 1983; it was started by Jim Sinegal and Jeffrey Brotman. Jim Sinegal was Sol Price’s protégé at FedMart. Jeffrey Brotman came from a retailing family and at an early age started as a grocery bagger. Together they created Costco and within the same year they had opened two other big warehouses, one in Spokane and the other in Oregon. About eight years later, an American businessman named Sam Walton opened his own version of a large discount retail department store, in direct competition with Price Club and Costco. He liked the “Mart” in Price’s “FedMart” so much that he decided to name his store Walmart. He made Sol Price an offer to merge with him, but Price refused. However, in 1993, Costco and Price Club agreed to a merge instead after Sol Price declined the original offer from Sam Walton. Sol Price felt that Costco and Price Club were more in line with the same concept which would make a merge easier. The rebranded name was now Price Costco. Together they had 206 locations and made $16 billion dollars in annual sales. In 1994, all of the locations were rebranded again to Costco Wholesale Corporation. Today Costco is the second largest warehouse retailer in the US, with 762 locations worldwide and its presence felt in 11 countries.