Costco by Mike Mozart (CC BY)
Costco seems to have a magnetic pull for shoppers and business experts around the world. For those who study retail, analysis of the company's strategy has become something of a cottage industry. The enigmatic warehouse store doesn't follow many of the traditional rules. Here are some lesser-known facts about this fascinating wholesale club operator.
One of Costco's most popular products is toilet paper. It’s been widely reported that the chain sells more than 1 billion rolls each year worth some $400 million for about 0.3% of total revenue. In one clue to its importance, the toilet paper is often found deep in the store, so budget-conscious customers have to pass many other tempting products on their way to stock up.
Costco doesn't label its aisles for the same reason it places popular items at the back: As customers search the store to find what they came for, they see more items they want to put in their carts. Nevertheless, it should be easier to find items in the giant warehouses than in some other stores. Costco stores usually house fewer than 4,000 products in an open layout while the average Walmart, for example, has about 120,000 products cluttering the aisles.
Costco keeps its rotisserie chicken and hot dogs cheap because they are loss leaders. In other words, people come for the meat and stay for the flat-screen TVs. The $5 rotisserie chickens are one of those items placed strategically toward the back of the store so customers can be entranced by other offerings as they walk by. At $1.50, the hot-dog-and-drink combo has been the same price for years.
Related: Costco, Trader Joe’s, Aldi: How Do They Stay So Cheap?
There are 833 Costcos, including 574 locations in the United States and Puerto Rico, 107 in Canada, 40 in Mexico, 29 in the United Kingdom, and 31 in Japan. There's even a Costco in Iceland; 1 in 8 Icelanders signed up for membership before it even opened its doors, according to Quartz. China's maiden Costco store had to close early on its opening day in August 2019 due to the Black Friday-like crowds that overtook it.
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There are almost 117 million Costco cardholders. Most cardholders are basic Gold Card members, paying $60 a year. Executive members pay $120 and can get a 2% reward on certain purchases up to $1,000 a year. (Not a member? You can apply here.)
Related: 12 Costco or Sam's Purchases That Make Back the Membership Fee
Worldwide there are more than 298,000 Costco workers, and by all accounts, Costco employees — including about 195,000 U.S. workers — are a happy bunch: Turnover rate is widely reported to be only 6% for employees of over a year; it's more like 60% for retail overall, according to Fortune.
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Costco raised its minimum wage to $17 an hour last year, and hourly workers average about $24 according to the company's CEO — and he said that before the latest minimum wage bump. By cutting costs in other ways (minimal decor and no shopping bags, for example), Costco can hang on to good, productive workers. The company also tends to promote from within.
Some 88% of Costco workers have health benefits. In addition, many employees are eligible for a 401(k) match, dependent care assistance, a counseling program, short- and long-term disability, life insurance, employee stock purchasing, and a health-care reimbursement account.
Related: Health Products and Services That Cost Less at Costco
The average Costco warehouse store is comparable in footprint to a city block in Manhattan. The smallest Costco is 73,000 square feet, and the largest is 235,000. Costco's major rival, Sam's Club, builds slightly smaller at an average 136,000 square feet.
Costco's private-label products, named after the company's origins in Kirkland, Washington, cost less than brand names but generally deliver high quality. In many cases, products from big-name companies are packaged under the store's Kirkland Signature label. For instance, Costco takes premium wine from highly regarded vintners and sells it for unthinkably low prices — which it can get away with, as the biggest wine retailer in the country. Yet consumer product testing suggests that the toilet paper's popularity may not be justified. It's soft but not very strong, according to Consumer Reports.
Unlike many of its competitors, Costco doesn't advertise (although it does tout deals or send coupons to existing members), which helps keep spending low and profits high. Even without selling anything, Costco can count on membership fees as a revenue stream and has no problem attracting enough new and returning members: 91% of members in the United States and Canada renewed their membership last year, according to the company's annual report, and the revenue from memberships grew 9%.
Related: 23 Fascinating Facts About Coupons
For years, Costco famously accepted only American Express from customers wanting to use credit cards, but as of 2016, any Visa card is welcome. Like many of the store's decisions, the split from Amex was related to cost — Visa takes a smaller fee on card purchases and gives back better rewards, as demanded by Costco. There are also many more Visa cardholders than those with American Express. SmartAsset notes the Costco Anywhere Visa card's 4% cash back on gas purchases and other perks.
Who would have thought Costco had its own magazine, let alone a print monthly with one of the largest circulations in the country? Yet Costco Connection has more than 14.3 million recipients. Now, as other national magazines decline and close, even traditional advertisers want a place on its pages of celebrity interviews, how-tos, recipes, and, of course, coupons. Costco Connection is available online for anybody to view or download, and there is an app version for iPhone and Android.
Some of Costco's best stuff is accessible even without a membership. In some states, legal loopholes allow alcohol purchases, allowing non-members a chance to try those excellent Kirkland Signature wines. A Consumer Reports study found that Costco has the best prescription prices, and no membership is needed to use the pharmacy.
Despite being known for value, Costco has an array of high-end products, including diamonds. Top of the heap: This $330,000 platinum band available on Costco.com features a near-colorless 6.55-carat round diamond.
Speaking of rings, a U.S. district court judge ruled in 2018 that Costco owed Tiffany & Co. more than $19 million for describing some of its rings using the Tiffany name. Costco has argued it was using the term generically.
The sheer volume of Costco stores is enough to rank the store comfortably within the top 20 American pizza chains. This is another loss leader: Slices are only $2. (For those who prefer to make their own, Costco sells an outdoor, wood-burning pizza oven for $2,800).
Costco sold more than 520,000 cars through its no-haggle auto-buying program in 2017, ranking it alongside the top dealership groups in the nation. The program has more than 3,000 participating dealerships in the U.S. and Puerto Rico.
While cost varies significantly by location, gas is typically 6 to 12 cents cheaper a gallon if members fill up at Costco stations, compared with competitors. The company had 636 stations at the end of 2021, but they don’t take cash. Instead customers can use Visa, a Costco credit card, debit, or Costco cash card.
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Costco shoppers are much wealthier than the typical big-box-store customer with average household incomes of around $100,000. Household income for the average Walmart shopper is a bit over $76,000, according to Business Insider.
Related: 20 Surprising Finds From Costco