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Costco: The 'anti-Wal-Mart'

You might not know this but I'm a HUGE fan of bulk shopping. I started out with Sam's Club in 1997 and have since progressed to Costco. And I'm a very loyal customer to Costco. This article simply reinforces my loyalty.

Most income from members' fees
Its cooperativelike operation makes the retailer's business model unusual. In its latest fiscal year, Costco generated pretax income of $1.75 billion, about 70% of which came from membership fees. An additional $125 million was kicked in by the interest income on the company's cash. Costco earned just $400 million from its stores, for a retailing operating margin of less than 1%. The low margin is intentional and reflects the company's commitment to low prices.

As a matter of corporate policy, Costco refuses to mark up any product by more than 15% above its cost. When the company signed a new contract in 2005 with a supplier for Brooks Bros.-style men's cotton and button-down shirts, and got a significant price reduction for a massive two-year order, it immediately cut the price of the shirts to $12.99 from $17.99, notes Richard Galanti, Costco's chief financial officer. Other retailers might have phased in the reduction and captured added profit, but that's not the Costco way. The shirts now cost $14.99 because they are made with better-quality cotton.

Let's take for example a whole uncooked chicken. Walk into any normal grocery store and they sell for about $8? That's about the going price. But at costco they sell 2 whole uncooked chickens bundled together for only $7. This is even more so for fresh fish where the local stores really jack up price for.


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