Costco is a unique business that’s become very successful. They’ve been able to build that success in a way that’s very different from their competitors. They’re not everywhere. They have nearly 750 locations as of the end of 2017, which doesn’t seem like many when you compare to Wal-Mart, who’s approaching 12000.
But 750 is pretty good. They’ve mainly spread throughout the United States, in Canada, as well as some other countries around the world. Eighty-seven percent of their sales come from either U.S. or Canada. And 30 percent of those sales come from California. So if you’re from Arkansas over there, I’m sorry, there doesn’t appear to be any in your state, but there might be soon.
Costco is on the rise. They’ve always been on the rise. They’ve been opening new locations every year. There’s over 200 Costco standing today that didn’t exist 10 years ago. About 30 of them didn’t exist last year. Here are some other ways to prove that they’re growing. Paid memberships have gone up steadily. Currently at 20000 more than there were 10 years ago.
There are a number of employees have increased nearly 100000 during that same period. Their revenue. They had a little dip there in 2009. But ever since then, it’s exactly what you want to see. I think I’ve proven that they’ve grown quite a bit in the past 10 years. But you may still be skeptical. Just because they’re growing doesn’t mean they’re successful. What if they’re opening too many locations?
Maybe they’re opening locations too close to each other. Maybe a lot of the new ones just aren’t doing well. This is the best I can do to address that. It’s comparable sales growth. It’s a way to measure how each location is doing this year.
It shows four percent, which means on average, their existing stores are generating four percent more sales when compared to the previous year. The negative one in 2009 is bad. It’s messed up the whole graph that’s from that little dip we saw in 2009. But usually, these numbers are positive. Costco is opening more locations each year, all while increasing sales in their existing locations.
So have I done it? Have I proven that they’re successful? I hope I have. So now I can move on to how they did it for the people from any of the six continents that aren’t North America and the people of Arkansas. Let me be clear about what makes Costco different. It’s a warehouse. Here’s a picture of a warehouse. And here’s a picture of Costco.
There are pallets everywhere with boxes on them that contain large quantities of food. They’re stacked up to the ceiling. You don’t buy the six-pack of Rice Krispie treats. You buy the big box with 54 of them. And since you’re buying it in bulk, you get quite a deal.
It does have a layout where everything is accessible and properly displayed, as well as the cashiers at the front. But other than that, it’s just a warehouse. That’s how they refer to their own locations. Here’s another graph. This is what makes them different from most other stores. And I think it’s pretty self-explanatory.
Ok, I’ll explain it. It’s a gross profit margin. It’s a measure of how much money they actually make and each sale in 2017 where it says eleven points three, three percent. It means for every dollar in sales, they actually made 11 cents. When you look at this chart, eleven point three is pretty high for them.
But now when compared to some other stores, it’s not that high at all. It’s very low. These heights that they’re finally achieving are about half of Wal-Mart and a third of Whole Foods. The point is, these other places make money when they sell you something. And Costco really doesn’t. Here’s what they do. They buy a ton of something and then do whatever they can to get rid of it.
Buying a bunch of stuff allows them to get it for really cheap. But then since they’re buying so much, they need to sell it really fast. They go through so much stuff before they’ve even paid for it. They’ve already sold it to us and they don’t buy five different flavors of crackers in three different sizes. Like most stores, they buy one flavor in one size and that size is really big.
Then they take that big box of crackers and they price it really cheap. So you’ll buy it. People would probably buy the smaller box if they had the option, but they don’t have the option. So they go with the bigger box. The high volume of sales does help compensate for the small margins.
But there’s a bigger part of this whole plan. Remember when I showed you they’re increasing paid memberships. If you don’t know much about Costco, you were probably confused at that point. You have to pay to shop at Costco. Each year it’s sixty dollars for a Goldstar membership, which is just the regular membership.
And for one hundred and twenty dollars, you can become an executive member. You get a fancier looking card and a two percent annual reward, up to 1000 dollars. It’s basically the more attractive option if you shop there a lot, these little 60 dollars and one hundred and twenty dollar membership fees.
That’s what Costco cares about. All of their cheap prices were just part of the plan to get you to buy the membership. Costco is famous for its $4.99 cent rotisserie chicken. And people wonder how can they afford to sell it for so cheap? Well, they can’t afford it. They’re losing money on it.
But it’s all part of the plan to get you to buy that membership in the same thing goes for their dollar, 50 hotdogs, an inexpensive pizza at the food court. Don’t think of Costco as a traditional store. Think of it like Netflix. Netflix is after that subscription fee in the same way that Costco is after that membership fee, or maybe think of it as a gym membership. In all cases, anything they do is just designed to convince you to sign up.
Buying and selling a large volume of products with little profit is just their way to entice you into that 60 dollars or hopefully 120 dollars annual fee. The money they make aside from that, I would consider a bonus. And looking back to that graph, they have been raising the money they make from selling things, and that’s while raising their paid memberships. Again, it’s nowhere near the other stores, but it’s not meant to be. The fact that it’s as high as it is means they’re doing well.
I had a comment on one of my videos a few months ago. This guy suggested I do a video on Costco. He says he works for Costco and is making fourteen dollars an hour, which is expected to go up along with full benefits and a retirement plan at age 20. He says that’s the standard where he works. And I should make a video about how they’re able to do these kinds of things.
He concluded by thanking me and calling me the gold. I responded by saying it was a good suggestion and two others responded with things that crushed his optimism. And by the end of it, he was feeling bad to go to work in the morning. But he brought up something interesting. Costco pays their employees much more money than other companies would for similar jobs. The average employee makes around 20 dollars an hour and has full benefits.
It’s yet another thing that separates them from everyone else. And paying them like this does have a lot of benefits to the company. It reduces the employee turnover rate. It makes them less likely to quit since it’s hard for them to find something better. Low turnover means less money spent on selecting and training new people. Also, it makes the employees happier with their jobs.
It should lead to a better environment and make the customers happier, which falls into their main plan of making the customers want to come back to renew their membership. About 90 percent of them do renew their membership, by the way, for the question of how they’re able to do it. The real answer is the same as how they’re able to sell those chickens for so cheap.
It’s a sacrifice to help their main goal, but it is less of a sacrifice than you might expect. The castle employees make the company more money than a store like Wal-Mart. Wal-Mart has to neatly stock shelves. And Costco really doesn’t think of the cashiers at Costco when they make one scan. It’s for a $10 box of Neutra grain bars when the cashier at Wal-Mart makes one scan.
It’s for a three dollar box of Nutra grain bars. It was the same amount of work for Costco to make the bigger sale. The ratio of sales per. The ploy is much higher for Costco than its competitors. So the higher wages are really just a sacrifice for the greater goal.
But things like this make it less of a sacrifice than it would be for others. When trying to answer the question of why is Costco so successful? I noticed a theme. It’s that people seem to like Costco. Customers enjoy low prices and friendly employees. The employees enjoy the high paying the benefits. Even the investors are fond of Costco. It’s valued at 83 billion dollars on the stock market, which is overpriced.
But it only gets that way because the investors believe in it and give it that value. They’ve been giving out quarterly dividends of 50 cents. If you own their stock all through last year, you received two dollars in dividends. Investors like something like that that they can count on. It’s also a good sign for the company that they’re even able to do it.
They also had a special dividend last year of seven dollars and a five-dollar special dividend in 2015. These are things that make investors happy. Everything they do just seems Jenner is now whether their intentions are pure or they’re just trying to be liked to sell memberships and raise their stock price. I have no idea.
But to try to answer the big question of why is Costco so successful? Well, they use some unique strategies to sell these memberships. The strategies are all the things I talked about, buying a ton of stuff and selling it quickly at low prices, selling these chickens at a loss.
Paying their employees more than others. They’re all just ultimately ways to sell more memberships. And I believe that for Costco, the definition of success is selling more memberships. Let me know in the comments what you think about Costco and their unique strategies.
Do you have a Costco membership and is it worth it? And that question wasn’t directed toward the people of Arkansas. I already know your answer, but if you have anything else to say about the topic, leave it in the comments.