is the largest membership
Warehouse Club chain in the world, and headquartered in
Issaquah, Washington ,
United States , with its flagship warehouse #1 in nearby
Seattle .
Founded by
James Sinegal and
Jeffrey Brotman , Costco opened its first warehouse in Seattle, Washington on September 15, 1983. Considered by many to be the most innovative and talented retailing team in the world today, Sinegal learned the business from the ground up while working for Sol Price at both Fed-Mart and Price Club. Brotman, an attorney from an old Seattle retailing family, was also involved in retailing from an early age.
Costco’s business model was similar to that of the Price Club, which was founded by Sol Price in 1976 in San Diego, California. Both companies built their reputations on quality merchandise at low prices and carried a much smaller number of products than the average retailer. Both charged a small membership fee and catered primarily to small-business owners.
The growth and success of both companies was phenomenal, with Costco being the first company ever to grow from zero to
$ 3 billion in sales in less than six years. The two retailers were similar in size and philosphy when they merged their businesses in 1993, effectively doubling the size of the combined company, PriceCostco, which at that time had 206 locations generating $16 billion in annual sales.
Originally led by top executives from both companies, Sol and his son Robert Price founded Price Enterprises and left PriceCostco in 1994. The company’s name was changed back to Costco Wholesale in 1997. Jim Sinegal and Jeff Brotman continued to lead Costco, and many talented employees from both the original Costco and Price Club contributed their expertise at all levels of the company.
Costco's
Web Site was first introduced in
1995 , and it started conducting
E-commerce in
1998 at
Costco.com . The Canadian e-commerce business,
Costco.ca , began in 2005.
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- 4th largest retailer in U.S.
- 7th largest retailer in World
- 29th largest, Fortune 500
- Retailer of the Year for 2005 (''DSN Retailing Today'' and ''Mass Market Retailers'')
Costco employs about 126,000 full- and part-time
Employees , including seasonal workers, and for fiscal year
2005 , ended in August, the company's store sales totaled $51.9 billion.
As of
April 2006 Costco has 473 locations:
346 in the
United States and
Puerto Rico ;
68 in
Canada ;
28 in
Mexico ;
17 in the
United Kingdom ;
5 in
South Korea ;
5 in
Japan ; and
4 in
Taiwan .
Costco's success is a result of its focus on selling products at low
Price s, often at very high volume. These goods are usually bulk-packaged and sold primarily to large families, small businesses and small business owners' families. As a warehouse club, Costco is open to only members and their guests, except for purchases of
Liquor ,
Gasoline and
Prescription Drugs in some
U.S. states due to
State Law and
Liquor License restrictions. The
Food Court where one can purchase
Fast Food items such as
Hot Dogs and
Pizza is open to both members and non-members. Memberships must be purchased in advance; the cheapest membership costs $45 for one year. 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
Gift Cards , called
Costco Cash also do not require a membership. To keep costs low, only
American Express cards, PIN-based
Debit Cards , cash, and checks are accepted. However, guests of members can generally only pay with cash, unless they use a member's AmEx card.
Costco is able to charge sometimes astonishingly low prices by keeping
Overhead low, returning savings to consumers. In fact, many senior
Executives , including Costco's CEO, use office furniture that was purchased from the
Boeing Company when Costco was started. Costco doesn't have a
Public Relations department either, believing it is unnecessary. The corporate jet is not used unless it is filled to capacity. The company's warehouses are sparsely decorated, with the exception of colorful
Marketing banners. Most products are delivered to the store on shipping pallets, and the pallets are used to display products for sale on the retail floor. This contrasts with other retailers who take the additional trouble to break down pallets and stock individual products on shelves. Costco caps its
Profit Margin on most products at 14% and allows itself slightly higher margins only on its ''Kirkland Signature'' store brand (a name derived from its previous headquarters in
Kirkland ) with a strict 15% profit limit.
Besides frugality, Costco is also famous for its idiosyncratic
Inventory practices. Unlike many retailers, stores do not maintain a full range of every product type and every major brand within each product category. Rather, stores carry only a few very popular product categories and selected products within each category.
Costco concentrates more on overall value than the lowest possible price for its product range. Many of the products it stocks are high quality at a reasonable cost instead of inferior quality at a low price.
In some product categories, the company does not rotate products often, so customers can expect certain brands of snacks or beverages to be in stock indefinitely. In many other categories the company constantly seeks the best deals currently available, so products will appear and disappear over short periods of time. This encourages consumers to regularly visit their local warehouse for surprise deals.
Since Costco has such high sales volume and rapid
Inventory Turnover , it is able to receive cash from the sale of a large portion of its inventory before it has to pay back its suppliers. This use of
Float is a major advantage in its own right; Costco is essentially borrowing money from their suppliers with no
Interest .
Costco is noted for providing full
Benefits and comparatively generous compensation to its employees. For instance, a cashier with four years of experience can earn more than $40,000 with full benefits, including
Medical ,
Dental ,
Rx ,
Disability , and
Life , and is even entitled to participate in a
401k Program and purchase
Stock Options . Part-time employees hired after 2005 (approx. 50% of the store based workforce) and full-time employees are charged different amounts for benefits, and they lose all the benefits if they get laid off.
These perks are the highest in the industry and especially surprising considering Costco's price-centric sales strategy (similar to Wal-Mart's, a company criticized for its low pay and refusal to offer benefits to some employees). A recent estimate (New York Times, July 17, 2005) puts Costco's average pay at $17 per hour, or 42% higher than Wal-Mart-owned
Sam's Club . Wall Street analyst Bill Dreher of
Deutsche Bank criticized Mr. Sinegal in 2004, saying "it's better to be an employee or a customer than a shareholder." Sinegal counters that good wages and benefits more than pay for themselves by holding down
Employee Turnover , reducing employee
Theft and by appealing to a certain percentage of affluent customers who appreciate that the low prices do not come at the workers' expense.
Over the years, Costco has gradually expanded its range of products and services. Initially it preferred to sell only boxed products that could be dispensed by simply tearing the shrinkwrap off a pallet. It now sells many other products that are more difficult to handle, such as fresh
Produce ,
Meat ,
Seafood , fresh
Baked Goods ,
Flowers ,
Clothing ,
Books ,
Software ,
Home Electronics ,
Jewelry ,
Art and
Furniture . Many stores have
Tire Garages ,
Pharmacies ,
Hearing Aid Centers ,
Optometrists ,
Photo Processing and
Gas Stations .
Some locations have liquor stores which are usually separate in order to comply with liquor license restrictions. In 2006, Costco won a court decision against the state of
Washington allowing it to purchase wine directly from the producer, bypassing the state's monopoly distributors.
Costco also acts as a broker for services such as
Investment products and
Travel including
Air Travel and
Cruise vacations. They have also introduced an
Automobile purchasing program where members can purchase new cars at specially arranged prices.
Costco has a very generous product return policy that allows customers to return most products indefinitely. Unlike other stores, Costco allows returns of opened media. Many people take advantage of this with
DVDs , software and other media. Buyers effectively "rent" the product temporarily by buying and later returning it for a refund.
Computers , which most retailers loathe to accept for a refund, have a six-month return period. Even the membership fee is fully refundable at any time. These policies are considered a significant factor in Costco's high rate of customer loyalty, although it is true that some people of questionable morals do abuse the generous return policy.
Costco is also well known for its
Hot Dog stands. These began as stand-alone impromptu arrangements outside of warehouses but are now built directly into current warehouses as actual mini-restaurants. The price of the hot dog and soda is still the same price as it was when they first opened ($1.50)- a price Jim Sinegal has stated will remain indefinitely. The hot dogs used are kosher and the brands used are
Sinai Kosher or
Hebrew National . The company has added other types of food, such as
Pizza , chicken bakes, chicken salad, smoothies,
Churros , and
Ice Cream . The chicken strips found in chicken bakes are the same chicken strips used in the chicken salads. A yearly event (usually in mid-July) is pizza week, where $3 coupons are distributed for whole pizzas.
Costco tore down the . In it they describe the restoration and relocation of the murals from the old casino to a new cultural center they have constructed.
Costco also has been accused of supporting Canadian sealing by selling seal oil capsules in its Canadian stores.
Sea Shepherd called for an international boycott
however, on March 31, 2006 Costco announced it was removing seal oil capsules from its shelves but retracted its decision seven days later. [http://www.theglobeandmail.com/servlet/story/RTGAM.20060405.wsealoil0405/BNStory/National/home
In the U.S., the majority of Costco's political candidates.
