What is Costco? Costco Review, Features

Costco (full name Costco Wholesale Corporation) was established in 1976. It is the founder of the world's membership-based warehouse wholesale and hypermarkets and has now become the largest membership-based chain warehouse hypermarket group in the United States.

About Costco

Costco is the largest chain of membership warehouse stores in the United States. It originated from Price Club founded in San Diego, California in 1976, and Costco founded in Seattle, Washington seven years later. In 2009, it was the third largest retailer in the United States and the ninth largest retailer in the world.

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Costco warehouse stores are located in nine countries around the world, including the United States, the United Kingdom, Canada, Japan, South Korea, Australia, and Spain. It has a total of 663 large supermarkets, more than 76.4 million paying members, and annual sales of approximately US$120 billion.

Product Category

Through its website, Costco sells a variety of products: electronics, computers, furniture, outdoor living, appliances, jewelry, and more.

Income Sources

Costco's profits mainly come from membership fees, and its products are basically close to cost price. This is also one of its core competitiveness. In terms of price and cost control, it has two rigid regulations, which are still in effect today:

The gross profit margin of all products shall not exceed 14%. If it exceeds this figure, it must be reported to the CEO and then approved by the board of directors;

For external suppliers, once the price is lower than Costco's elsewhere, its products will never appear on Costco's shelves again.

Operational Model

Costco attracts a large number of consumers with its unique model of "high-quality goods + low prices + membership", which is different from the operating model of traditional supermarkets. It does not make money by increasing the gross profit margin of goods, but desperately reduces the gross profit margin to make profits from membership fees.

Profit Model

1. Accurately identify customer groups, with the middle class as the main target.

In response to the shopping habits of the middle class, Costco mainly selects stores in suburban areas and sets membership fees at US$60-120 per year. It reduces commodity costs through a large-package mass-market sales model, and reduces consumers' shopping time costs by carefully selecting commodities and reducing SKUs, achieving high cost-effectiveness, and providing a one-stop shopping experience in combination with various additional services.

2. The selected products are extremely low priced and the high cost-performance ratio attracts users.

(1) Excellent bargaining power is one of the important reasons why Costco products can be sold at extremely low prices. Costco adopts a mass-market retail model, selecting a small number of SKUs, but the purchase volume of a single SKU is huge, which gives the company excellent bargaining power when negotiating with suppliers.

(2) In addition to product quality and price, the location and layout of products in the supermarket is also one of the reasons for Costco's excellent performance. In Costco stores, many best-selling and seasonal products are only purchased once a year and may be placed in an inconspicuous corner. The layout of products is often changed. This kind of hunger marketing and layout makes consumers walk longer when shopping, and their desire to buy increases, which can increase the number of products purchased by consumers and increase operating income.

3. Strictly control costs, and low expense ratio lays the foundation for low prices.

(1) Most of Costco’s warehouse-style stores are built on its own land, and most of the goods sold are low-priced and popular items, which greatly reduces the inventory costs and land rental costs of the goods.

(2) In addition to warehousing costs, Costco also reduced store renovation costs and the number of employees, and never advertised in the media. Instead, it promoted its products through word-of-mouth among members, thereby reducing labor costs and marketing expenses.

4. Establish high-quality private brands and maintain user stickiness through excellent reputation.

In addition to carefully selected foreign brands, Costco also has its own brand "Kirkland". This brand was founded in 1995 and mainly provides low-priced and high-quality goods. The product categories cover ready-made clothes, batteries, daily necessities, beverages, health foods, etc. It has an excellent reputation among consumers and has become the No. 1 health brand in the United States, accounting for more than 20% of Costco's revenue.

5. A full range of additional services provide members with a one-stop shopping experience.

(1) In addition to daily necessities, Costco also improves customer satisfaction and maintains customer stickiness through additional services and excellent after-sales and employee services. Many Costco branches provide additional services such as tire repair, pharmacies, eye clinics, photo processing, gas stations, bakeries, etc. The prices of gas, vehicle repairs and prescription drugs are also relatively cheap in the market.

(2) The one-stop shopping experience, reliable after-sales guarantee and various preferential activities have increased the loyalty of Costco members and further consolidated the model foundation of the membership-based retail supermarket.

6. With a high renewal rate, membership fees become the main profit point.

Due to the high quality and low price of products as well as excellent additional services, Costco's members have very high brand loyalty, and the current membership renewal rate in the United States and Canada exceeds 90%.

Development History

-In October 1994, Costco opened its first store in Asia in Seoul, South Korea.

-In January 1997, Costco and Taiwan Datong Group (the parent company of Datong Department Store) jointly introduced Costco to Taiwan, and the first store in Taiwan was established in Kaohsiung. Currently, there are 5 branches in Taipei, Kaohsiung and Taichung, and it is expected to open a sixth branch in Hsinchu in 2009. Costco is currently the only hypermarket in Taiwan that charges a membership fee of NT$1,200.

-In October 1997, the two companies officially merged into PriceCostco, and then on August 30, 1999, it was renamed Costco Wholesale Corporation.

-In 1998, Costco opened its first store in Japan in Fukuoka. By the end of 2015, its sales reached US$116.1 billion.

-In the 2018 Fortune Global 500 ranking, Costco ranked 35th.

-In May 2018, Costco signed an investment agreement with Shanghai Pudong Kangqiao (Group) Co., Ltd. Costco will set up its China investment headquarters in Pudong Kangqiao and jointly build a membership club retail flagship store in Kangqiao Town with its partner Galaxy Holdings Group.