This article will provide an in-depth analysis of Costco’s business miracle, from its unique model of “double stability + double low + four highs”, to the core concept of “loyalty to members”, to its strategic choices in the process of global expansion, and take you to understand how Costco maintains its everlasting foundation in the unpredictable market and the profound enlightenment it brings to the new retail era.
Costco’s 2024 earnings data performed brilliantly, with total revenue soaring$254.4 billion (equivalent to the four giants of Coca-Cola, Procter & Gamble, Netflix, and Johnson & Johnson combined), and its number of paid members is as high as high137 million people, which can be called an industry benchmark.In-depth analysis further reveals,In the two decades from 2005 to 2024, its revenue has grown at a compound rateStay at 8% (Walmart vs Target only 3%)； What’s even more amazing is thatIn less than 15% gross profit marginUnder the framework, Costco has created more than thatNet profit margin of 2%.
Charlie Munger once praised“The ideal investment is to buy a great company like Costco, without thinking about the timing of exit.”
This leads to three core thoughts:
- What factors underpin Costco ThroughMore than 20 years of economic cycle, successfulfend offThe impact of macroeconomic fluctuations and consumption cycle rotation, as well as changes in consumption habits and channel revolutionsChallenge，Maintain steady revenue growth?
- While continuously improving operational efficiency,How does Costco achieve a continuous reduction in the proportion of expenses?
- Under the strategic determination to maintain a stable gross profit margin for a long time,What mechanism does Costco rely on to achieve continuous profit margin improvement?
This article will provide an in-depth analysis of Costco from eight core perspectives in 16,000 words:
- 1. Costco’s business miracle: double stability + double low + four highs
- 2. Listen to the story: trace the inheritance and evolution of Costco’s business genes
- 3. Simple and extraordinary: loyal to members!
- 4. Loyalty to members:The price is low and the quality is high, and I promise that the profit will never exceed 15%!
- 5. Loyalty to members:Carefully selected, I promise “every product is what you want”.
- 6. Loyalty to members:Differential treatment, I will let the old members enjoy exclusive rights.
- 7. Loyalty to members:It will exceed expectations, and I ensure the ultimate quality of our own brand Kirkland
- 8. Loyalty to members:Satisfied employees and satisfied users, I treat every employee sincerely.
- 9. Postscript and enlightenment: business wisdom and universal value through the cycle
1. Costco’s business miracle: double stability + double low + four highs
I’m not good at quitting. I don’t even like to find a way to exit, what I want is to hold shares. Think about how happy I am to watch Costco soar all the way – why would I trade that experience for a series of deals?
– Charlie Munger
Looking back at the history of the retail industry,Sam Walton, founder of WalmartHe once said frankly in his autobiography,Precisely because it was inspired by the Price Club (Costco past life).He founded Sam’s Club. And in the preparation stage, I went to Price Club stores for inspection and study many times.
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Fast forward to 2001. At that time, Amazon was experiencing a stock price crash, and Bezos and management had planned to boost investor confidence by raising prices. However, after visiting Costco founder Jim Sinegal, Bezos’ business philosophy changed –“There are only two types of companies in the world, one is always trying to make more money from customers, and the other is committed to saving more for customers.” In the end, Amazon abandoned the price increase plan and established the “customer-first” Amazon flywheel.
Costco’s influence also spans oceans and has profoundly inspired the Chinese business community. In 2011, Lei Jun said frankly after inspecting Costco:“I was blown away after reading the Costco story”;Huang Zheng, the founder of Pinduoduo, said bluntly,He wants to create a “combination of Costco and Disney”; Similarly, Yu Donglai, the founder of Fat Donglai, also regards Costco as an important benchmark for learning.
▲The picture comes from “Why is Costco, which Bezos, Munger, Huang Zheng, and Lei Jun praise so strong?” 》
As a result, since 2000, the global retail industry has experienced a triple change: the financial crisis, the impact of the Internet, and the rise of Gen Z consumption.Costco has always shown strong resilience through steady growth through cycles.
Next, let’s get a glimpse of the legend through three sets of data:
1. Steady growth (8.8%) + steady expansion (3%):
In the two decades from 2005 to 2025, Costco’s revenue compound growth rate has been consistentStay at 8.8%, saw only the only negative growth during the 2008 financial crisis. and Walmart and Target’s in the same periodWith a growth rate of only 3.3% and several instances of stagnant growth,This fully demonstrates Costco’s stronger ability to resist macro cycles.
Costco’s stability is also reflected in the pace of its store expansion.From 313 stores in 2000 to 890 in 2025, except for special years,It has always maintained a steady pace of 15 to 30 new stores per year (3%).
This is withTraditional retail industry “fast store opening – diluting costs – increasing profits”The pattern of the model is in stark contrast. While peers are addicted to mergers and acquisitions or blind expansion, Costco has always adhered to a prudent store expansion strategy.
▲ The picture comes from Dolphin Investment Research: Costco store expansion growth +
Practice confirms,Costco, which adheres to the principle of “slow is fast”,Not only has it been at the top of the industry in 20 years, but it has also achieved continuous growth beyond the industry average. Although steady expansion is not a prerequisite for success, Costco certainly proves it“Only by walking steadily can we go far”The reason.
2. Double low: extreme self-discipline to build a moat
Let’s change positions. While traditional retailers indulge in “making the difference,” Costco has built it pioneeringlyThe commercial closed loop of the synergy between the membership fee model and low gross profit margin.Although it is the pioneer of the non-paid membership system, it has interpreted the concept of “paid membership” to the extreme.
Different from its peers, Costco uses gross profit marginSelf-restraint of no more than 15% of the iron rule, building strong competitive barriers. This mechanism not only ensures the long-term existence of the price advantage but also maintains an operating margin of around 3.3%, compared to 3.65% in fiscal 2024, which is already its highest level since 2000.
▲ The picture comes from Dolphin Investment Research: Comparison of operating profit margins
3. Four highs: the pinnacle interpretation of the member economy
- High renewal rates.As of 2024, Costco Global76.2 million paid members,built a powerful moat.What is remarkable is that the 90.5% renewal rate has almost touched the ceiling of the industry.Among them, 92% in the United States, 95% in Japan and South Korea, and 60% in China; In contrast, the total number of Sam’s paid members is only 50 million, and the global renewal rate is 80% (90% in China), which is obvious.
- It is much higher than the single-store sales power of its peers, that is, the ping efficiency.By comparing the single-store operations of Costco, Sam’s and BJ’s, it can be found that Costco’s single-store sales are nearly twice that of Sam’s and more than three times that of BJ’s.
- High net profit cash bull.Costco sells about 3.9 times more than Sam’s in a single SKU, and about 16 to 40 times more than BJ’s, Walmart and Target.
▲ The picture comes from Dolphin Investment Research
- High net profit.In 2024, Costco will have a net profit of $7.4 billion, of which $4.8 billion will come from membership fees and $2.6 billion will come from retail profits.Note that this is pure cash income and is annual.
At this point, do you have a deeper understanding of Costco’s legend?
2. Listen to the story: trace the inheritance and evolution of Costco’s business genes
Costco’s development process can be roughly divided into four stages:
1. Past life: FedMart and Price Club – the four new covenants that subvert retail
In 1954, lawyer Sol Price founded FedMart in San Diego, pioneering a warehouse store with four core principles that completely changed the traditional retail logic and became the “Bible” that Costco pursues to this day:
▍▏ Principle 1. Contract service
The membership fee I charge is the service fee they pay meTherefore, I have the obligation and responsibility to provide them with the best products and the lowest prices.
My attitude towards pricing policy is“Give first, get later”。 The lower the price you offer, the more business you have. It becomes a chicken-and-egg thing: low price or large quantity, which comes first?
▍▏ Principle 2: Sincerity first
We try to look at everything from that perspective– Is this really honest with customers?If you recognize that you are truly a trustee for your clients, you shouldn’t make too much money.
A retailer that embodies honesty, credibility, and clear direction,Both its customers and suppliers understand that this will be a great opportunity.
▍▏ Principle 3: Members are the moat
First, membership provides a…How to pre-select customer groupswithout extensive research.
Second, only withselected groupsdeal with them and communicate effectively with customers.
Third, and finally, paying to be a member of an organization is a commitment.
▍▏ Principle 4: Equal culture and good treatment of employees.
We kept our company infrastructure lean and tried to eliminate status differences between management and other organizational levels. Everyone wears a name tag with their name written on it, and we call each other by name. No one has a fancy office with a sofa or a private toilet…… It’s part of our culture.
Customer first, employees second, shareholders third, refuse to reduce costs by squeezing employees, and focus on efficiency innovation. (Ali learns its shape)
▲Sol Price: FedMart and Price Club
In 1976, Saul, who was nearly sixty years old, started his second business due to shareholder disagreements, and his son Robert PriceFounded the family’s company, Price Club, and was successfully listed in 1982.
Costco founder Jim Singer has joined Saul’s team since FedMart and has gradually grown to become the head of the supply chain. He recalled with respect:
- — I stole more ideas from Saul Press than anyone I know.
- ——People like Thor are hard to come by.
- – I stared at everything he did and learned everything from him!
And what is even more legendary is thatCostco’s second CEO, Craig Jelink(Craig Jelinek) was at FedMarton the food shelfSilently cultivated, andCurrent CEO Ron VacriRon Vachris started inForklift driver at Price Club——It appropriately interprets the inheritance and continuation of the Costco spirit.
2. Parent: Founded by Costco (1983)
In 1983, Jim Singer teamed up with Jeffrey Brotman, a lawyer from a Seattle retail family, to open the first Costco warehouse store in Seattle.
Following the low-cost operating model of Price Club, Costco not only went public just two years after its establishment (1985), but also achieved the feat of surpassing $3 billion in revenue (1989) six years after its founding, and by 1993, its annual sales had soared to $16 billion, quickly emerging as an industry leader.
3. Century Merger and Strategic Choice (1993)
In the nineties, Saul handed over power to his son Robert, who was more passionate about real estate development. In 1993, against the backdrop of the threat of Walmart’s takeover, Price Club merged with Costco to form PriceCostco, forming a vast retail network with 206 stores and annual sales of $16 billion. However, the sequelae of the merger soon became apparent: revenue growth plummeted to 6% in 1994.
Subsequently, the ideological conflict between the Price family heirs, Robert and Jim Singer, intensified. The Price family later chose to leave in 1994 and founded PriceSmart. The battle for the route finally ended with Jim Singer leading the company back to the essence of retail.
▲The picture comes from the Internet
4. New Beginning: Costco’s Global Expansion (2000-Present)
In 1997, the fourth year after PriceCostco was founded,The company officially changed its name to Costco Wholesale, opening a new era of strategy.
- Millennium Turn:In 2000, 313 stores around the world generated $32.1 billion in revenue, and net profit margin also rebounded from 1.4% in 1992 to 1.9%;
- Infrastructure Revolution:In 2001, Costco invested $1.5 billion to renovate its old stores and $200 million to upgrade its logistics system, successfully building efficient supply chains such as “cross-transfer warehouses”;
- Area Filling Strategy:Since 2003, the company has increased its layout density in mature markets, with 60% of new stores in mature markets, resulting in a membership penetration rate of 66% in core cities.
- Pinnacle Achievements:As of 2024, 890 stores worldwide make Costco the leader of membership-based warehousing clubs, the world’s third-largest retailer, and continues to lead the industry in single-store performance.
▲Costco founders Jim Siegal and Jeffrey Brotman
This half-century-old history of retail evolution is a powerful testimony:A truly great business model requires not only the wisdom of the pioneers, but also the persistence of the inheritors to the original intention and the strategic determination to keep pace with the times.
3. Simple and extraordinary: loyal to members!
When the outside world repeatedly dissects Costco’s “open secrets”, the answer has long been rooted in its unique corporate culture and genes:
- Values:in order toAlmost paranoid persistence, to provide members with low-priced and high-quality goods and services.
- Business model:Members pay for admission, and the gross profit of the goods is capped,Profit comes from membership fees.
- Operate the iron law: All cost savings must be converted into member concessions,Any form of price increase is prohibited.
- Guiding principles: For members, employees, suppliers, communities and the environmentDo the right thing.
- faith: Firmly believe that “when we do the right thing,Good things will happen”.
These ideas are forged together “Membership fee = service contract” business philosophy. However, why is such a principle of transparency only one Costco? The answer lies in thisTriple knowledge and action are oneThe ultimate practice:
1. Culture is strategy: engrave the “service contract” into the organizational gene
“Culture is not the most important thing, it is the only thing that matters.” So said Costco founder Jim Singer.
When “low price and high quality” becomes a corporate value creed, the real challenge is how to get every employee – from executives to tally attendants – to internalize this “service contract” as instinctive and spontaneous action.
It is this cultural soil that enables tactical actions such as middle-class positioning, membership fees, and streamlining SKUs, which are sought after by the outside world, to be implemented— Culture is not decoration, but Costco’s strategic operating system.
2. Pay and get: the “perpetual” flywheel that returns profits to customers!
We often ask companies what they do with windfalls, and most companies use them for other purposes, or give cash back to shareholders. Almost no one answered: return to the customer.
——Nick Sleep
Nick Slip, founder of the American Nomad Fund, hailed the Costco model as a “Perpetual motion machine”,A business model called “economies of scale sharing”.
Charlie Munger has a similar opinion: “Costco is almost crazy about serving its customers better every year. When other companies find ways to save money, they turn it into profits, and Singh returns the earned revenue to customers.It’s almost a devout way to give back – he’s willing to sacrifice short-term profits for long-term success. ”
It is this concept that has built a subtle “growth flywheel” in the history of business:
- Start: (Limit price + high quality) → Members save money → increase in members
- Rotation: Scale effect → Cost reduction → Profit return → Trust accumulation
- Forever motion: Scale expansion → cost reduction → better price → loyalty strengthened
Its essence is to continuously inject efficiency dividends into member value – profit is not the end, but the fuel for a new round of competitive advantage.
3. Employees are the lifeline: the anti-efficiency miracle of “family-style” organizations
Current CEO Ron Vachris emphasizes:“Costco thrives thanks to employees with diverse perspectives, experiences, and ideas. Despite Costco’s size, the company wanted to provide a family atmosphere where employees could thrive and succeed. ”
When the retail industry is addicted to standardized efficiency, Costco has built an irreplaceable organizational advantage with a “family” culture that is “counter-common”: different from the “instrumental” employment relationship in Europe and the United States, surpassing China’s “cattle and horse” manpower model, and innovating Japan’s rigid lifelong employment system.Employees serve sincerely and become the ultimate transmitter of “loyalty to members”.
The ultimate question: What are Costco’s keywords?
If the ALZZI label is “low price”, the core of Sam’s Club is “selected” – then what makes Costco uniqueSoul imprint？
We understand that the key to a brand is “user loyalty”, and we also understand that the core goal of marketing is to win this loyalty.
But what exactly does “user loyalty” mean? The common understanding is that users continue to choose brands and buy more products and services.But this is only an appearance and does not touch the foundation of true and lasting loyalty.
Compare romantic relationships to the level of loyalty in the business world:
- Both sides “play on the spot”, tacitly: the relationship is relaxed, but fragile and fragile;
- One side “plays on the spot”, and the other side “devotes itself wholeheartedly”: it is destined to be unbalanced and will eventually collapse;
- Both parties “cherish each other” and give wholeheartedly: a strong relationship can last for a long time.
At this moment, looking back at the “spirit of contract” laid by Sol Price, Costco’s business philosophy suddenly becomes enlightened – if you want to be loyal to members, you must first be loyal to members!
This is the soul core that the brand ape has refined for Costco – “loyalty to members”!
- Loyal to members: low price and high quality, I promise that the profit will never exceed 15%!
- Loyal to Members: Handpicked, I promise “every product is what you want”.
- Loyalty to members: Differentiated, I will let old members enjoy exclusive rights.
- Loyal to our members: We will exceed expectations, and I ensure the ultimate quality of our own brand Kirkland
- Loyal to members: satisfied employees and satisfied users, I treat every employee sincerely.
At this point, the core theme of this article really comes to light. Next, let’s closely follow the soul of “loyalty to members” and deeply analyze its subtleties.
4. Loyalty to members: low price and high quality, I promise that the profit will never exceed 15%!
Costco godfather Sol Price once said: “I never allow anyone at FED-MART to use the word ‘discount’. The whole philosophy is:How we sell at the lowest price, not the best price!I never allow them to use superlative or compare pricing or make a sale. All of this is a gimmick. ”
Analyzing the “low price” strategy in the retail industry, it can be summarized into three models:
- Ultra-low price: Emphasize the price of the goods themselves.It is usually limited to a specific price range (such as a ten-dollar store or the lowest price). Its low price comes fromSell low-cost goods(White Label/OEM),But the actual gross profit margin is often not low(e.g., Pinduoduo, JD.com/Walmart white label).
- Discounted low price:Passlimited-time activities, tail goods processing, temporary productsand so on to achieve price advantages. Products usually maintain brand attributes, and low prices come from marketing strategies or product timeliness (such as Hema moving mountain price, 9.9 yuan coffee, Don Quijote).
- Hardcore low price: PassOptimize the supply chain, improve efficiency, and build your own systemand other endogenous capabilities to compress gross profit margins and transfer profits to consumers. Provided isRegular-priced or even high-quality products with no quality defects, and never discounted promotions(such as Olzi and Fat Donglai).
Unlike the first two, which rely on external variables (low cost, price war, and off-season), hard-core low prices rely entirely on the endogenous strength of retailers. Therefore, it has the lowest profit margin among the three models and is closest to the essence of small profits and quick turnover.It is also the ultimate form that most thoroughly implements the user’s position.
Costco, which chooses “hard-core low price”, has achieved a triple “absolute” breakthrough compared to Aldi and Fat Donglai:
1. Absolutely low gross profit margin: iron law enforcement
If Costco increases the price increase to 16%-18%, the company’s principle of cost price control will be disrupted, resulting in trouble.
– Costco founder Jim Singer
▲The picture comes from Dolphin Investment Research: Gross profit margin comparison chart
The iron rules formulated by Jim Singer are still in use today:The price increase for any product is capped at 14%, and the private label Kirkland does not exceed 15%.
The financial report data confirms its firmness: Costco has long suppressed the average gross profit margin at about 11%, forming a fault gap with its peers:For example, Walmart 25%, Target 30%, Dollartree 20%, Amazon 23%. Even Sam’s Club, which also focuses on payment, has only managed to “suppress” its average gross profit margin to 15% in the Chinese market.
2. Absolute high quality: the product quality benchmark in the definition
Although low price is a strategic label, Costco, which anchors the middle-class customer base, is well aware of the core of winning long-term trust——Provide absolutely excellent quality at the ultimate price.
It is the scarcity tension formed by “low price” and “high quality” that allows it to cross the consumption cycle and become a key pillar for building a stable and loyal customer base.
3. Ultimate efficiency: the ultimate password for low gross profit.
Costco’s “low price and high quality”It does not compromise on product quality or pass on costs to suppliers, but is achieved through the ultimate self-gross profit compression and systemic efficiency revolution. Its efficiency engine consists of three core components:
1) Focus on high-net-worth users: a moat of precise screening
Let’s revisit Sol Price’s comment on “Membership is very important to usThe logic of:
First, membership provides a way to pre-select customer groups without the need for extensive research.
Second, dealing only with a select group allows for effective communication with customers. Instead of communicating with the whole world, you communicate one-on-one with the people you want to reach.
Among the approximately 300 million U.S. population, Costco strategically serves the 50 million middle-class groups with strong spending power through a “paid” screening mechanism.
This high degree of focus greatly improves the matching of products and services.Delivers amazing single-guest output: Costco members spend more than $100 per purchase, which is about the unit price of Walmart and Target (about $50+).twice； Costco members spend an average of about $3,000 per year, which is roughly close to Walmart’s $2,800. But in terms of single-store sales, Costco is as high as Walmart’sAbout 3 times.
▲The picture comes from Dolphin Investment Research
The logic behind this is that the high purchasing power, high customer unit price and strong consumption resilience of the middle-class customer group have jointly built Costco Crush the same industryThe foundation of single-store performance.
2) Full-chain efficiency revolution: Costco’s cost-cutting innovation
To deliver on its business promises, Costco has launched an efficiency innovation across the entire chain:
- Extreme SKU (≈ 4000 pcs): implementInventory is cleared monthly(turnover rate 12.6 times/year), maximizing floor efficiency;
- Warehousing paradigm: three-dimensional shelf integration storage and marketing process,Streamlining business hoursoptimize manpower;
- Agile logistics network: Invest heavily in regional distribution,Reduce inventory and keep it fresh；
- Large capacity pricing rule: For example, Tide Laundry Detergent – Walmart 100ml/$39 ($0.39/ml） vs Costco 500ml/$100（$0.20/ml）。
The efficiency crushing is reflected in the financial report: Costco’s operating expense ratio is only 9%, less than half of Walmart (19%)/Target (21%).
3) The art of cost control: less is more genetic imprint.
The name Costco Wholesale is obviousWholesaleGene.Therefore, the store eliminates redundant decoration and service, which has become a criterion engraved in the bone marrow. For example, when purchasing furniture in the United States, Costco does not provide home delivery, and after purchasing furniture, the staff only assists in moving the goods aside.
Costco’s second CEO, Craig Jelinek, bluntly said: In order to provide lower prices and higher value,We eliminate almost all of the false shelves and costs that have historically been associated with traditional wholesalers and retailers as much as possible, including sales personnel, high-end buildings, delivery, bills and accounts receivable.
Owned property strategy (81% of stores worldwide) allows this “control” Going further: Significantly reduce rents, accelerate expansion, and increase capital flexibility.
It is these three “absolute” breakthroughs – iron-clad low gross profit, uncompromising high quality, and extreme efficiency – that together forge Costco’s membershipThe first oath of loyalty: low price and high quality, profit never exceeds 15%!
5. Loyalty to members: carefully selected, I promise “every product is what you want”.
There is a classic joke circulating in Canada: If you want to buy something but Costco doesn’t sell it, it means that you may not really need it.
Costco’s “selection” philosophy is realized through three dimensions: the first is that the selected category covers all daily life; the second is to select products to ensure that they are “really good”; The third is to carefully serve the value of innovation experience.
1. Selected categories: “Buy with your eyes closed, you can use it sooner or later”.
Costco’s category strategy is shown in three aspects:Less but fine + full coverage + return to the essence of life。
- The dominant advantage of “less but fine”:Single-store SKUs are strictly controlled in3800-4200 pieces, compared to traditional supermarkets (20,000+)Plummeting 80%。 Even if it is benchmarked against Sam’s, BJ’s and other formats,Fresh SKUs are 35% less than Sam’s, down 55% from BJ’s。
- The precise realization of “full coverage”:Limited SKUs meet the one-stop needs of middle-class families, and the categories span daily consumption to special scenarios. Coffins are even sold in the United States and Australia.
▲The picture comes from the Internet
- The underlying logic of “focusing on life”:By accurately eliminating pseudo-needs and non-core categories, Costco essentially subtracts for modern life and guides users to return to their real needs.
At this moment, Costco became a caring butler: While strictly abiding by the bottom line of the budget, it covers the whole picture of quality life with exquisite product selection, and quietly reshapes the lifestyle and consumption mentality of members,”It also inadvertently improves your lifestyle”。
2. Selected products: quality is strictly selected
The essence of the selection mechanism is the embodiment of service commitments.Founder Jim Siegal bluntly said:“We have a strict pre-selection of the items we sell,Strive to buy high-quality and low-cost goods in every category。”
Costco’s quality selection is based on three pillars:
- Brand Pyramid Strategy: Each category is introduced only2-3 high-quality products at the lowest pricecombinationFirst- and second-tier brands and private brands。 For example: co-branded jeans with Levi’s ($89),Annual sales exceeded $150 million。
- Data Decision Center: New products need to be experiencedBlind test verification for consumers(For example, after Pittsburgh’s trial sale of Parmesan cheese received high praise,Lightning will be distributed throughout the United States within 3 months）。
- Scarcity Value Engine: 限量发售Domaine de la Romanée-Conti典藏红酒(The unit price is $55,000), recorded28 minutes to sell out, simultaneously leverage the growth of high-end members.
The results of strict selection are turned into shocking data: Costco single-SKU salesUp to 3.9 times that of Sam’s, and 16-40 times that of BJ’s/Walmart/Target。It is this ultimate explosive rate that continues to improve the shopping experience and member stickiness.CashThe commitment of “loyal to members, every product is what you need”.
3. Careful service: experience the value of the scene
Compared with the extreme streamlining of products, Costco is inThe service and experience dimensions continue to expand, to build a multi-dimensional value network:
1) High-frequency service empowerment: build a traffic engine
In response to the characteristics of suburban location and driving consumption habits, Costco creatively implanted three high-frequency scenarios:
- Low-cost gasoline:The gas station serves an average of 2,000+ vehicles per day, accounts for 4% of the market share in the United States, and the frequency of refueling for members reaches 2.3 times per week (annual contribution of about 24 billion US dollars).
- Gastronomic gravitational field: $1.5 hot dog set annual revenue of $380 million (no price increase since 1985); $4.99 roast chicken annual sales of 100 million; In addition, with 3-5 red wines, Costco is already the largest red wine retailer in the United States.
- Financial income generation: The co-branded card in cooperation with Citibank has both membership card and credit card functions, and can enjoy 2% cashback on consumption.
▲The picture comes from the Internet
This kind of high-frequency service seems to be an edge business, but in fact it relies on the main business to achieve near-zero marginal cost of customer acquisition.It can be called a model of “endogenous monetization of traffic”.
2) Low-frequency and high-profit ecology: build a closed loop of services
Costco builds a service matrix across a wide range of businesses, including pharmacies, optical centers, auto repair, tire maintenance, and even hotel reservations and insurance. These low-frequency but high-margin services not only expand the average annual consumption scenario of users, but also increase the proportion of non-retail revenue.Form an ecological closed loop of “high-frequency drainage – low-frequency replenishment”.
3) Treasure Hunt Theater: A Revolution in Participation
Costco is “Treasure Hunt Retail Psychology(Treasure Hunt Retail Psychology). Like what:
- Maze Flow: There are no aisle signs and shopping mall maps, and the shelves are only marked with numbers.Forced exploration behavior；
- Dynamic Store Layout: Adjust the furnishings from time to time,Stimulate unplanned purchases and create freshness；
- Online Treasure Hunt: The official website has a “Treasure Hunt” section to display newly discovered products.
▲The picture comes from the Internet
As retail psychologist Dr. Smith said:“Costco transforms warehouses into adventure parks, elevating shopping into a journey of discovery.”
Does it deliver on its promise of “carefully selected”? Every time a member steps into Costco, “empty-handed” or “full of surprises” is the most powerful answer.
6. Loyalty to members: Differential treatment, I will let old members enjoy preferential treatment.
The membership economy has become a standard in retail, but few companies understand the essence of “operating members, not commodities”.
Costco’s “paid membership system” not only pioneeredService is revenueThe business model has been tempered into a solid competitive barrier through practice.
1. Mutation of profit genes driven by dues
Unlike traditional retailers who rely on merchandise spreads and channel fees, Costco About 70% of the net profit comes directly from membership fees。 The core of this model is: casting membership fees as the cornerstone of profitability to support the ability to sustain low prices; Achieve a high degree of synergy between cash flow and net profit.
Its revolutionary nature is reflected in three aspects:
- Focus on the origin of value: The strategic focus has shifted to “Providing better products and services” The ultimate mission.
- Subverting the profit logic: Commodities are reduced from “source of profit” toA medium to connect members, completely jumped out of the price war red sea.
- Sublimation Business Essence: Through a selection of productsBuild deep user relationshipsreveal “The essence of business is to serve users” The ultimate insight.
This model with “membership service” as the core and membership fee as the pillar has been confirmed in the success of Sam’s and Amazon Prime.
2. Cashback mechanism: simple and efficient
Costco faced serious challenges in the early days of its membership system. Consumers neither understand nor accept the membership model, resulting in dismal membership card sales and being on the verge of bankruptcy. How did Costco turn the tide?
According to Liu Run in “About Costco, Things You May Not Know”, its executives shared a key decision:2% rebate for premium members(and set a maximum rebate limit).
▲The picture comes from the article “About Costco, Things You May Not Know”
Specifically, the premium membership fee is $120 per year. Based on this calculation, a family only needs to spend $500 per month ($6,000 per year) to get $120 backbate pointsReturn。 If you spend more than $500 a month, you canExtra profit。 With this strategy, Costco quickly amassed its first members.
This mechanism not only saves Costco, but also becomes the dual-core engine of the membership flywheel:
- Equity Visualization: Transform abstract equity into clearly visible cash back.The key to the success of the membership system is that users can easily judge whether it is cost-effective. For example, the membership fee of the Hema platform is 258 yuan, and you can enjoy an 88% discount on Tuesday, and the calculation of the cost recovery needs to be assisted by a calculator. On the other hand, Costco’s 2% rebate intuitively reflects its low markup rate advantage of 10%.
- Stimulate addiction models：Each consumption offers a double incentive – instant gratification (The pleasure of shopping at a low price）+Delayed incentives (The sense of wealth accumulated by cashback） This predictable positive feedback strongly cultivates consumption habits and creates a terrifying stickiness of 90% renewal rate
3. Value matching: hierarchical privileges activate core users
As the brand ape insight –The essence of the membership system lies in the preferential treatment of old members.
This concept derives two iron laws:
- Service-level matching law: The more levels, the greater the privileges –The goal is not to attract new people, but to retain and deepen relationships.
- Value-demand precision law:Through differentiated qualifications, it is provided to different groupsTargeted, high-match value。
Costco’s grading system is a textbook for value matching:
- Gold Star: $60 per year and provides basic membership benefits. It covers 82% of individual members and contributes about 45% of sales.
- Business: Designed for small business owners and merchants, it allows multiple employees to hold the card and enjoy specific bulk purchase discounts to meet their business needs.
- Executive (Top Member): Pay a higher annual fee ($120) and enjoy core privileges – up to 2% cashback on annual purchases (up to $1,000). The 2023 data shows that although the proportion of Executive members is not high, they contribute72.8% of total global sales, is the absolute main force of revenue.
▲The picture comes from the Internet
So far, the operating logic of Costco’s membership system is clearly presented:Convert membership fees into low-priced capital → Accurately target value groups through tiered rights → rely on top members (high ARPU value) blood transfusion ecological → Drive “pay-benefit-repurchase-upgrade”Self-enhancing cycle.
Loyalty to members means that they must be given privileges or exclusivity –And these privileges will also become the core gravity of users joining, retaining, and constantly leaping upward.
7. Loyalty to members: It will exceed expectations, and I ensure that our own brand Kirkland is of high quality and low price
Costco’s ultimate loyalty to its members is directly reflected in the value totem that will exceed expectations: Kirkland Signature.
Kirkland is not only the largest private label brand in the United States, but also redefines the success paradigm of retail private labels: 2023 (excluding gasoline).$56 billionRevenue. The striking nature of this number lies in:
- Contributed nearly 1/4 of Costco’s total revenue (about 23%)；
- Crush the global giants: surpassed Coca-Cola (45.75 billion) and Nike (51.22 billion);
- Leading by multiple levels: Sam Member’s Mark (estimated at 220-25 billion)More than double。
▲The picture comes from the Internet
Looking back at its development, Costco’s involvement in its own brand can be described as “starting halfway”. In the early 90s of the 20th century, Jim Singer was inspired by the high penetration rate of his own brand in the UK (nearly half of the food) and was determined to break the game. Its winning path can be summarized as follows:The key three steps：
Step 1: Brand unification – from fragmentation to super symbols
In the early days of globalization, Costco had its own brandThe names are complicated and the cognition is confused(such as Simply soda, Chelsea toilet paper, Clout detergent, Nutra Nuggets dog food, etc.) This not only increases brand management costs, but also hinders the establishment of a unified global image.
In 1995, Singh made a decisive decision:Unify all private labelsConsolidated into “Kirkland Signature”； At the same time, a simple and highly recognizable red, white and black three-color minimalist visual system has been established, laying the foundation for brand unity.
Note: In 2017, Sam’s Club integrated 21 brands into Member’s Mark, and the CEO admitted to follow Kirkland’s example.
Step 2: Positioning upgrade – define the value paradox of “high quality and low price”
We have established what we call “absolute pricing power”. If you see an item at Costco, you’ll be pretty sure you’re getting the best price. ——Jim Singer
KirklandBreak through the traditional private brand positioning：notUltimate value for money (ALZI);It is not trueQuality-price balance (Sam);It’s even wrongLow Price Differentiation (Trader Joe’s);Instead, it pursues a high-end brand with “high quality and low price”.
Its core requirements for the product are extremely clear:The quality must be equal to or better than that of well-known national brands (such as Procter & Gamble, Coca-Cola, Kraft, etc.) – which are synonymous with quality and trust – and the price must be significantly lower.
Step 3: Action – the path to achieve “high quality and low price”
How to fulfill this seemingly contradictory promise? Kirkland relies on five core approaches:
- Method 1: Gross profit margin iron law (≤15%).Example: Kirkland W180 cashew nuts – with rolling-grade cost performance (high quality + very low price), monopolize about 50% of the global cashew nut market.
- Method 3: Head brand OEM: join hands with industry leaders to produce the “Kirkland version”,Ensure immediate trusted quality. Example: The Diaper War – Procter & Gamble (Pampers) refuses OEM → Costco only has Kirkland (Kimberly-Clark-Clark) and Curious → dual-brand strategies to lock in user trust.
- Method 3: Independent production: control cost and quality.When the outside cannot meet the low price or quality, he personally controls the production chain. Example: $5 roast chicken (lower than the cost of raw chicken)→ Self-built chicken factory; Optical lens price increase → Self-operated grinding factory guarantees free optometry and glasses dispensing services.
- Method 4: Ultimate optimization of the supply chain: millimeter-level cost reduction and reconstruction of the cost of each link.Example: Cashew nut can square circle transformation → Single container volume 288 cans → 432 cans (+50%)→ Logistics costs plummeted.
- Method 5: Zero marketing spend:Members are the medium. Relying on the ultimate loyalty, repurchase and word-of-mouth fission of 130 million members. Save costs and feed back low prices and strengthen the flywheel of value.
It is the paranoid pursuit of “high quality and low price” that has not only grown into Costco’s largest revenue contributor, but also jumped to a cultural symbol that surpasses ordinary private brands, and has built a unique commercial moat.
8. Loyalty to members: employees are satisfied and users are satisfied, and I treat every employee sincerely
We always believe that if you hire great employees and provide good jobs, compensation, benefits, and career development opportunities, then your business will grow well.
– Costco founder Jim Singer
Costco is well versed in the iron law of “employee satisfaction is the absolute premise of user satisfaction”, and its practice of “loyalty to employees” focuses on constructionThe golden triangle of fair returns, growth empowerment, and cultural frequency:
1. Salary and benefits beyond the industry: invest in people
Jim Singer bluntly stated its unconventional logic: we have taken a method that goes against traditional practices and pays employees high wages. Employees who push carts or stock up in our parking lot are paid more than $11 per hour compared to competitors who pay $12 and $22 an hour. In addition, our employees enjoy a full set of benefits,This is a very stable workforce.
The data confirms its subversive investment in people:
- Leading Salary: Costco employeesThe average hourly wage is as high as $26, far from the supermarket average (such as Walmart about $18).
- Generous benefits。 Traditional benefits such as free leave and family leave are covered, and employees can celebrate days that are meaningful to them (e.g., Indigenous Peoples Day, Veterans Day).What is particularly rare is thatComprehensive health and dental insurance is available even for part-time employees; Provide veterans with an exclusive job application process to help them transition their careers; Launched the “College Student Retention Program,” which allows employees to retain positions while pursuing their degrees, among other things.
- The cost structure supports this:Of all the money we use to run our business,For every $1 we spend, 70 cents are spent on our employees,This is our most important spending ratio to date.”
This heavy investment in “people” not only catalyzes a high level of loyalty and efficiency, but also becomes a solid foundation for Costco’s differentiated services and excellent brand reputation.
2. Equal respect and internal promotion: empowerment and belonging
Costco through system design,Eliminate hierarchical differences and activate the spirit of ownership of all employees:。
- Equality and Respect:All employee name tags are only marked with the time of employment and do not show the level of position; The Country Head sits directly in the open office and shares the workspace with regular employees.
- Managers practice it: Regular participation of managementfront-line work such as warehouse handling and commodity display。 CEO Jelinick admitted: “I might get a call from a cashier who complains, ‘I don’t work enough hours’.”
- Internal promotion is prioritized:Costco’s top management is almost entirely promoted from within the company. For employees who have worked for 3 years, the dismissal requires special approval from the CEO/COO; More than 7,800 hourly employees participate in management training programs to open up growth paths.
3. Cultural frequency: top-down value transmission
“Wash” Jim Singer’s idea again:“Culture is not the most important thing, it is the only thing that matters.”
This philosophy is deeply embedded in the bloodline of the organization and has become a code of conduct at all levels:
- Integrity is paramount (Founder Jim Singer): “Never deceive suppliers, customers, or employees. This means admitting mistakes and correcting them immediately, not looking for excuses.”
- The ultimate cost-effective promise (Vice President of Food and GroceryNancy Grease): “If any store is found to be selling for less than ours, Costco will lower its price ‘before sunset.’ However, we will never sell at a loss. ”
- Quality assurance (Chief Operating OfficerDoug Schutt): “Our biggest challenge is to make sure the quality of the goods is as advertised.”
- Start from the bottom (Adamo, vice president of family affairs): “Here, you really start from the bottom, and then go through the tempering of each position, learn as you go, and grow all the way in this atmosphere.” ”
While other businesses struggle or fluctuate due to succession issues (such as Starbucks), Costco ensures long-term consistency in strategy – in 2024, Ron Vachris, an employee who grew from a forklift driver, became Costco’s third-generation CEO.
▲Costco’s third-generation CEO: Jim Singer on the top left + Craig Jelinker on the bottom left + Ron Vachris on the right
Sincere investment in employees forms a double mutually reinforcing core effect:
Effect 1: Motivated employees = exceptional efficiency and ultimate service
As Zeynep Ton, an associate professor at the MIT Sloan School of Management, observes, Costco employeesGiven greater responsibility and trust, thus creating oneHappy and enterprising, with a spirit of ownershipteam. She emphasized:“They are constantly innovating and improving, which is why Costco is able to pay them well.”
This logic is also confirmed in the successful practice of Chinese retailer Fat Donglai: high treatment, → strong willingness to serve, → extraordinary user experience→ high user loyalty, forming a strong virtuous circle.
Effect 2: High loyalty = significant hidden cost savings
Costco has the highest employee loyalty in retail worldwide:Employee turnover is less than 10% and less than 6% in the first year. This is 21% at Sam’s Club, and Walmart has an employee turnover rate of over 44%.
The efficiency dividends brought by low churn rates are far beyond imagination.At Walmart, the cost of recruiting, testing, interviewing, and training new employees averages up to $2500 per person. Costco’s labor costs account for only 9.8% of revenue, far lower than Walmart’s 17%.
Zeynep Thorn’s incisive summary:High salaries for employees are not incompatible with cost savings.The key is to retain talent by hiring good employees, arranging the right jobs, and paying good salaries. Allowing management to focus on operations rather than frequent hiring is also beneficial to shareholders in the long run.
Costco proves with actions that sincere investment in employees is by no means a cost burden, but the foundation of new retail that drives “employee satisfaction→ user satisfaction→ and business success”.
9. Summary and enlightenment: business wisdom and universal value through the cycle
When an in-depth analysis of Costco is completed, a meaningful picture naturally emerges:If Fat Donglai, the founder of Yu Donglai, meets Costco founder Jim Singer, he will definitely introduce him as a confidant. Although they are separated by oceans, the two show an amazing high degree of compatibility in business philosophy, value concept and business authenticity.
However, compared with the extremely high requirements of the Fat Donglai model on the personal pattern and feelings of entrepreneurs, Costco’s great practice provides for enterprises that pursue long-term valueMore universal and referenceable enlightenment：
Revelation 1: Culture is strategy – forging values into physical barriers
Costco Verified: When “loyalty to members” is truly internalized into the blood of the organization, and it runs through every key decision – from the iron law of pricing, the rigor of product selection, the treatment of employees to the prudence of store expansion – the culture is goodBeyond slogans, it is upgraded to the most indestructible competitive moat and endogenous growth engine.
Action Guidelines: Establish a clear, sharp and implementable core culture, making it a decision-making compass and behavioral gene for the whole link of operation.
Inspiration 2. The ultimate power of the model – comes from paranoid persistence
Costco Verified: The “paid membership + hard low price” model is no secret. At the heart of its success lies decadesAlmost paranoid persistence: Do not increase gross profit margin due to short-term temptation, do not lower quality standards due to competitive pressure, and do not blindly expand stores due to growth impulses.
Action Guidelines: Anchor your “hardcore” model or value proposition and execute it unwaveringly with martyr-like long-term determination.
Inspiration 3. Eternal moat: quality, quality, or quality!
Costco evidence: On top of the halo of low price and scale, Costco has built the deepest and most durable ultimate barrier:Endless demands on product quality and service experience. This ensures that the core interests of members are unshakable and is the lifeline of its 90%+ member renewal rate.
Action Guidelines: No matter how the business model subverts innovation, the ultimate product/service quality will always be the cornerstone of winning user loyalty and pouring trust.
Inspiration 4. The power of focus – fission of limited resources and infinite value
Costco in Action: Its “focus” profoundly practices Jobs’ insight – “Focus equals.”Reject hundreds of good ideas”。 It is reflected in the “three initiatives”:
- Focus on core users: Do not pursue borderless user expansion,Take the initiative to focus on and serve the most valuable paying member groups to the extremeto achieve efficient and accurate matching of demand and supply.
- Focus on growth quality: Not superstitious about speed,Focus on steady, sustainable growth。 Ensure new store success rates and healthy same-store sales growth, buildBusiness stability through economic cycles。
- Focus on commodity value: does not chase the number of SKUs,Focus on selected, high-quality, high-turnover rigid demand products。 This extreme focus on the value of core goods makes its needs manifestAlmost ignoring the resilience of fluctuations in economic and technological cycles, ensuring the long-term health of the business.
Costco has proven with its excellent practices spanning half a century: In the ever-changing business world,Sincerely loyal to users and their core values as the starting point,Building a highly self-consistent, efficient and firmly executed corporate culture and business system is the most reliable path to achieve longevity. This is not only a revelation for the new retail industry,It is also a beacon of certainty for all enterprises in the face of an uncertain future.
Finally, let Charlie Munger’s praise end this article:
I like its cheap real estate, its competitive position, its personnel system, and everything about it. Jim Sinegal is admirable, and his excellent business management skills are comparable to those of business giants such as Carnegie, Rockefeller or James J. Hill. I think he’s one of the five most prominent retailers of the last century, and he’s just so good.
Attached: 22 Business Wisdom from Costco Founder Jim Siegal
▍▏Strategic culture:
1. Our attitude at Costco is that corporate culture is not the most important thing in the company, but the only thing.It determines your every move. We must constantly strive not to lose our corporate culture. Our employees describe it as “doing the right thing.”
2. Our business mission is very simple,That is, constantly striving to provide goods and services to the market at the lowest possible price。 We look at each product and make judgments accordingly. When you only have less than 4000 items, you can spend a lot of time doing this.
The average retailer might look at a $29 item and say, “I don’t know if I can sell it for $31,” while we might look at the item and say, “My price is $20, how can I sell for $18 and then sell for $16.”We’ve really been paying attention to this and everyone is working on it.
3、In my opinion, if you don’t have someone who is passionate about the business to lead the businessNo matter how smart, creative, hardworking, or how much money they have, as long as they are not passionate about the business, you will not see the business in the right direction.I will always look for this love。
4. Return shareholders in the short term by not paying attention to one of the aspects (legal, customer, employee, supplier), but you can’t do this in the long term. Either you will have labor problems, you will break the law, your customers will be discouraged from you, or the supplier will not want to do any business with you. Sooner or later, you will fall badly.
5. We don’t have any grand plans except for quality problems and wanting to develop the business in a reasonable way, like we have to enter Latin America by 2015 or have 1000 Costcos in 10 years.
6. We are not like kamikaze pilots, we just want to do things in a reasonable way.If we can accelerate our growth within our management capabilities and deliver quality products, then we will do so.
7. Everything is changing, and we must pay attention to change.Change is always there, and if we are to succeed in the future, we must be as innovative in the next 15 years as we have been in the past 15 years. It is imperative that we do not survive otherwise.
8. We like to think of ourselves as flexible, we like to think like a small company.It’s not easy for a company with 213,000 employees to do this, but it’s important because we think it’s our way of navigating a competitive environment.
▍▏User thinking:
1. We review the history and evolution of business, and then say to the successors, child, you better recognize why customers shop with you. Customers visit us not because we have Santa Claus in front of our door, or because we have fancy windows, escalators, or piano players.
It is better not to forget this:They come to us to shop because our products are cheap。
2. Every product we sell must be able to save customers money. If we can’t, we won’t sell.We’ve had situations like in Portland where we didn’t sell sugar for two years or so because every supermarket there was selling sugar below cost so we couldn’t save our customers.
3. Our attitude is,If they walk into the store and see that we can’t save them money on sugar, they have reason to believe that maybe our pricing on Michelin tires or TV sets isn’t that cheap.This is a loophole, and we will not let it happen.
4. 87 million people have Costco membership cards in their wallets. Our card renewal rate is very high, which means that customer stickiness is high. We have established what we call “absolute pricing power”.If you see an item at Costco, you’ll be pretty sure you’re getting the best price.
5. Customers “vote” at the cash register,If we don’t do a good job, they won’t buy our products.
6. I try to think from the customer’s point of view.Are the goods in the store complete? Are the goods complete, clean and safe? There is nothing more offensive than poor internal management, especially where there is food. Also, if your storefront is sloppy, I guarantee that your item discount rate (theft and store theft) will be high.
7、We create an atmosphere of treasure hunting in the supermarket。 When customers come in, they may find that we used to have a Coach handbag, and when they come in again, there may be no Coach handbags in the store, but there may be some Levi’s that are selling well.
▍▏ Operation and management
1. We have adopted a method that goes against the traditional practice and pays high wages to employees.Employees who push carts or stock up in our parking lot are paid more than $11 per hour compared to competitors who pay $12 and $22 an hour. In addition, our employees have a full set of benefits, which is a very stable workforce.
2. We rely on very high productivity.We have high salaries and a sound benefits plan. If you believe that Costco is a low-cost provider of goods and services while paying the highest wages in retail and has the most extensive benefits package, then we are sure to be more productive. Because for every $1 we spend on business, $0.7 is spent on our employees.
3. All our management is self-cultivated.All of Costco’s managers today are people who have been with us for 10, 12, and 15 years before becoming warehouse managers.
4. If you consider the manpower required to unpack, manually stack goods on shelves, and sort low-priced goods, you will see how much savings this method can bring. So, Costco only has about 12 cereals, while the average supermarket has 350.
5. We have set a minimum and maximum markup for ourselves. If we make a good deal, the customer is the beneficiary.
6. I like to do Costco. I’ve been doing this all my life, it’s my style.That doesn’t mean it’s the right style or the one for everyone, but it’s my style.
7. Find what you really love, and you won’t have to work in your life. I am 80 years old and retired, but I still go shopping at Kaishi every day. No one pointed a gun at my head, I did it just because I liked it.If you can find something you like, this is the gift of life.
To be continued: “New Retail 2025: Fat Donglai”
Brand Ape New Retail 2025 Series:
《New Retail 2025▎ Sam’s only for “members”: Why does the renewal rate reach 90%?》
《New Retail 2025▎ “Poor Ghost Paradise” ALZI: How to make “low price” into trust?》
《28,000 words ▍ Unlock 7-Eleven’s “Thinking from the user’s point of view”: How to continue to create new value for users?》
Reference article for this article:
“Excellent investors love to study Costco, read the founder’s 47 proverbs in one article”
“Brand Story | Issue 27: Market Opener
“How does Costco, the miracle of the retail industry, build its corporate culture?” Here’s a big reveal”
“The Story of Price Club, the Originator of the Warehouse Membership Retail Model”
“Costco|2024 Annual Report Read the latest and most complete annual report data analysis of 2024 market openers”
Costco: How does retail “snail” refine “King Kong does not break the body”? 》
“Unlike Sam, Costco deliberately makes you “can’t find anything”? 》
“Demystifying Costco, the originator of the warehousing giant: the ultimate model of membership economy and business model”
Costco Spiritual Source Sol Price: Back to the basic question – what is your relationship with your customers? 》
“Costco’s Kirkland Brand Rise and Analysis of Its Market Strategy”
