 There's no doubt that retail is one of the biggest industries around, with supermarkets, department stores, and online shops taking over 20 trillion dollars of our money every year. But one company has chosen to do things slightly differently, and that's Costco, with considerably fewer stores than rivals and outrageously low prices.
What's so special about Costco, and how does their members-only policy make their business even more successful? Here's how it happened. The first Costco opened in 1976 in San Diego as Price Club, named after its founder, Sol Price.
who had already seen success with discount department store FedMART, which operated on a membership basis, charging local businesses $25 annually for access to their low prices, The stores were located in no-frills warehouses, making them cheap to maintain and great for storing items in bulk that customers could just pull off the shelves. Meanwhile, in 1983, a different discount store was launched.
Over in Seattle, Costco, whose apparent strategy was a clone of Price Club, The newer brand was an immediate success, opening more locations around Washington State and then nationwide, becoming the first company ever to hit three billion dollars in sales within six years of inception. After a decade of direct competition, Price Club and Costco elected to merge in 1993, combining their membership bases at 200 locations and 16 billion dollars in sales.
Soon after, the company formed Price Smart, now Central America's largest membership warehouse chain, and all Price Chopper stores were renamed Costco. Over the next 20 years, the company's membership base grew to astronomically high levels, reaching a total of 100 million in 2020, while opening new warehouses in Canada, Europe, Asia, and Australia. Business Center Costco
employs over a quarter of a million people in the process, but how are they able to be so successful with such low prices? First off, let's talk about Costco's profit margins, which are around 11 percent, much lower than most department stores, which normally sit anywhere between 20 and 50 percent. That's because they don't just sell one roll of toilet paper at a time; they sell a hundred, and such a high turnover of products means they can afford to make less profit on each one.
What's more, is that the bare-bones nature of their stores doesn't require constant rearranging and decoration—just moving a whole crate of chewing gum onto a shelf—so they can afford to employ fewer staff per store, and when a cashier scans 50 cans of Pepsi in a single swipe.
Costco is able to spend significantly less on staffing per can than any of its rivals, but don't forget that it has still managed to build a reputation for paying its employees well, with many receiving over twenty dollars an hour. Happy employees make for happy customers and help create a positive atmosphere throughout the store.
Costco also keeps a very limited range of stock, typically housing only one brand of every item and one side of the multipack, such as a 12-box bundle of crackers, leaving customers no choice but to buy in bulk. The brands that make the products have noticed this too often, selling their stock to Costco at drastically reduced prices because they know theirs will be the only option in store and thus is guaranteed to fly off the shelves.
For products they're not happy with, they just sell their own under the Kirkland Original brand named after Kirkland, Washington, the former location of the company's headquarters, but the final and possibly most important component to Costco's success is, of course, their membership program, which starts at $60 a year and makes up around 75 percent of the company's total revenue.
Those who sign up don't mind paying the annual fee because they feel like they're getting a great deal on all the discounted products. Membership also adds to what's called the "sunk cost fallacy." the idea that members are losing money whenever they don't shop at Costco; encouraging unprecedented levels of brand loyalty to their stores; and customers coming for the lost revenue 5 rotisserie chickens or 149 hot dogs
and stick around to bulk buy their weekly groceries or for new kitchen utensils and furniture, plus the fact that the membership program itself carves out a particular demographic of customers: affluent families and couples who are happy to spend slightly more per shopping trip to ensure they're well stocked at home. Costco warehouses often have over 100 000 square feet (or 10 000 square meters) of floor space, much more than your normal supermarket.
enough room to store your new tires, medical prescriptions, or even just a toilet brush. Basically, you can buy anything at Costco, so members know they can make just one trip to buy everything they need for their home. With such a unique model, it's pretty impressive that Costco has managed to climb to the third biggest retailer in the world.
With just a fraction of the number of stores compared to Walmart, let us know other reasons that you think Costco is so successful and if the membership model could soon be the norm. That's how it happened, and thanks for watching.
