The other fascinating part of Costco’s model is inventory turns and payment terms.
Costco carries a remarkably small number of SKUs and sells enormous quantities of each. That gives it tremendous purchasing leverage, but more importantly, the inventory turns so quickly that Costco can often sell the merchandise before it has to pay the supplier.
In effect, the supplier finances much of Costco’s inventory.
That means Costco can earn relatively thin margins on merchandise and still generate very attractive returns on the capital actually tied up in that merchandise. Add billions of dollars of recurring membership fees and you get a very different model from a conventional retailer.
That’s why I think “loss leader” understates what Costco has built. The genius isn't losing money on products to sell memberships. It is turning inventory and cash so efficiently that Costco can offer unusually low prices, still make money on the products, and make the membership increasingly valuable.
Two weeks ago a new Costco opened in Guilderland, NY after a roughly 20 year period of buying the land, obtaining!,losing and regaining building permits and fighting local opposition from competing businesses. Prior to this, the closest CostCo's are in Syracuse and Springfield which are at least 1 1/2 hours away.
They brought in 50 experienced employees from other locations and hired 200 locally-having received 10,000 ( yes, TEN THOUSAND ) applications for 200 positions.
In one day before the store opened they sold 14,000 memberships, the most they have sold in a single day at any location.
The lines in the store appear long but their checkout lines are amazingly efficient. It really is eye opening.
ha, I wrote about my visit to Costco yesterday. The gas station opens before the store does. I always get gas at Costco; fill up my tank, then fill up my car w/ goodies from Costco. I always get their boneless, skinless chicken thighs. And always get their vacuum-packed leftover rotisserie chicken breast meat. W/ these pkgs of breast meat, I put in my earbuds, listen to audiobooks, get my food scale out, w/ a bunch of Ziploc bags & package up 3 oz servings of the meat to go into the freezer. These bags can then be quickly thawed for salads, tacos, burritos, enchiladas & other various meals. I get 3 of the vacuum packages, which provide at least 40 little baggies for the freezer. I go on Mondays 'cause that's the best day to find the leftovers. Along the back wall, you'll also find all the prepared meals; they use the leftover dark meat or small bits of the breast: lots of Mexican dishes, potpies, so many!! I never buy those, 'cause I make 'em myself, but they're a quick grab for others, are yummy (we've had some at friend's house) and are a good price. Then the sales, such as yesterday, the Bounty paper towels... since it's just 2 of us I don't purchase a lot of the canned goods. We don't eat sweets so I don't go into the snack area. I do purchase most paper products & laundry/dishwasher soap.
eta: when renewal time comes up, we always get a $50 credit
Reading the comments below, I'm fascinated by the strategies people have come up with to shop at Costco. Someone should write a book. I am not a member but I did get gas there for the first time last week. The lines were very long, but moved quickly. And...you could pull up to either side of the island, regardless of where your gas tank is because, as the big sticker on the side of the pillar reads, "Extra long hoses" with a photo of the hose going over a car to fill the tank on the other side.
Costco has been my go to store since it opened. As both a customer and a vendor, it is a great experience. Living in their home state, and going to their corporate office to meet with buyers, I have been exposed to a strong, ethical business model. I have always said that I won’t move to an area without. A Costco nearby!
Pharmacy, vision department and hearing departments all add to the romance!
I shopped a lot at Costco back in the 90's for work. Learned through that experience that prices are Costco for a pack of six are not always cheaper than prices in the local grocers. You still need to do the math and know your prices. Easier now with the internet.
I was at Costco a few weeks 6woth my neighbor, first time in a decade. For me, it's too overwhelming. By the time I put on the cost of the membership, the time to drive there.and wander the aisles, the cost in time and money is not worth it for me.
Sounds like Trump is having another tantrum. Won't let me put my name on something, I am going to knock it down. Isn't that just like a kid in daycare knocking down someone else's lego tower.
I tried Pace back when we used it as a business and I can understand the appeal for many. Since I don’t eat hot dogs or commute to work much is lost on me. I like my weekly Whole Foods run and Amazon - at least for now - simplifies my life.
“If I can’t have it my way, no one can have it!!!”
“But he would see this country burn if he could be king of the ashes”
Down here in Panamá we have Pricemart which, at one time, was the Central American Costco. They were affiliated. It’s possible to still find Kirkland branded items on the shelves. I’m a member because of the pharmacy benefits they offer as I pay out of pocket for my drugs and with my cedula(permanent residency card)I get a nice discount. None of the stores sell gas though as I’m pretty sure the prices are controlled. They get adjusted up or down once a week. But back to Costco, before I left Western NC there was talk of a Costco coming into our area. After all, there were two within 20 miles of each other down the mountain in Spartanburg and Greenville, SC so we couldn’t figure why they wouldn’t build one more convenient to our market. Last I had heard though, those plans had been spiked. Oh well….
It was revealed today that Dolly died of cancer but there was nothing further said about what kind. She had said after her husband Carl died that she had sort of let her health go which so often happens with long term caregivers. Carl had Alzheimer’s disease so it had to have been really rough. She really was a marvelous lady who affected so many lives all over the world. In a world of Elons and trumps, be more like Dolly.
OK, so before I move to where I am now I had a Sam’s membership. When I moved here, there was not a sam’s so that’s why I joined Costco.. When I had Sam’s membership and when my middle son was very young, we would go to Sam’s and he would use his allowance which he earned by doing chores, he would buy candies like fun dip, and Tootsie roll pops that sort of thing, he would then take that and bike down like two blocks to the little league ballpark. He would sell his purchases individually to those at the ballpark for less than the concession stand at the ballpark. He made quite profit. Believe it or not, he was very shy but quite a salesman
And now I get to do a plug for volunteering. Today the topic started because of a new target is moving in behind our local Costco. I rarely go to target. So that discussion got started and I told those volunteers all about my purchases at Costco, including the vacuum packed rotisserie breasts, etc., etc., etc. They were thrilled to hear about that because they never knew what Costco did with their leftover rotisserie chicken.
Bought our washer and dryer at Costco. They double the warranty and their delivery/install guys are the best ever. All that and way cheaper than anyone else.
The other fascinating part of Costco’s model is inventory turns and payment terms.
Costco carries a remarkably small number of SKUs and sells enormous quantities of each. That gives it tremendous purchasing leverage, but more importantly, the inventory turns so quickly that Costco can often sell the merchandise before it has to pay the supplier.
In effect, the supplier finances much of Costco’s inventory.
That means Costco can earn relatively thin margins on merchandise and still generate very attractive returns on the capital actually tied up in that merchandise. Add billions of dollars of recurring membership fees and you get a very different model from a conventional retailer.
That’s why I think “loss leader” understates what Costco has built. The genius isn't losing money on products to sell memberships. It is turning inventory and cash so efficiently that Costco can offer unusually low prices, still make money on the products, and make the membership increasingly valuable.
Two weeks ago a new Costco opened in Guilderland, NY after a roughly 20 year period of buying the land, obtaining!,losing and regaining building permits and fighting local opposition from competing businesses. Prior to this, the closest CostCo's are in Syracuse and Springfield which are at least 1 1/2 hours away.
They brought in 50 experienced employees from other locations and hired 200 locally-having received 10,000 ( yes, TEN THOUSAND ) applications for 200 positions.
In one day before the store opened they sold 14,000 memberships, the most they have sold in a single day at any location.
The lines in the store appear long but their checkout lines are amazingly efficient. It really is eye opening.
ha, I wrote about my visit to Costco yesterday. The gas station opens before the store does. I always get gas at Costco; fill up my tank, then fill up my car w/ goodies from Costco. I always get their boneless, skinless chicken thighs. And always get their vacuum-packed leftover rotisserie chicken breast meat. W/ these pkgs of breast meat, I put in my earbuds, listen to audiobooks, get my food scale out, w/ a bunch of Ziploc bags & package up 3 oz servings of the meat to go into the freezer. These bags can then be quickly thawed for salads, tacos, burritos, enchiladas & other various meals. I get 3 of the vacuum packages, which provide at least 40 little baggies for the freezer. I go on Mondays 'cause that's the best day to find the leftovers. Along the back wall, you'll also find all the prepared meals; they use the leftover dark meat or small bits of the breast: lots of Mexican dishes, potpies, so many!! I never buy those, 'cause I make 'em myself, but they're a quick grab for others, are yummy (we've had some at friend's house) and are a good price. Then the sales, such as yesterday, the Bounty paper towels... since it's just 2 of us I don't purchase a lot of the canned goods. We don't eat sweets so I don't go into the snack area. I do purchase most paper products & laundry/dishwasher soap.
eta: when renewal time comes up, we always get a $50 credit
Reading the comments below, I'm fascinated by the strategies people have come up with to shop at Costco. Someone should write a book. I am not a member but I did get gas there for the first time last week. The lines were very long, but moved quickly. And...you could pull up to either side of the island, regardless of where your gas tank is because, as the big sticker on the side of the pillar reads, "Extra long hoses" with a photo of the hose going over a car to fill the tank on the other side.
They really thought of everything.
I'm not a Costco member, (I live 3 hours away from one) but you're tempting me to be a member on the off chance I go to the city 😉
Always enlightening, Bill! Especially today!
Costco has been my go to store since it opened. As both a customer and a vendor, it is a great experience. Living in their home state, and going to their corporate office to meet with buyers, I have been exposed to a strong, ethical business model. I have always said that I won’t move to an area without. A Costco nearby!
Pharmacy, vision department and hearing departments all add to the romance!
I shopped a lot at Costco back in the 90's for work. Learned through that experience that prices are Costco for a pack of six are not always cheaper than prices in the local grocers. You still need to do the math and know your prices. Easier now with the internet.
I was at Costco a few weeks 6woth my neighbor, first time in a decade. For me, it's too overwhelming. By the time I put on the cost of the membership, the time to drive there.and wander the aisles, the cost in time and money is not worth it for me.
Sounds like Trump is having another tantrum. Won't let me put my name on something, I am going to knock it down. Isn't that just like a kid in daycare knocking down someone else's lego tower.
I tried Pace back when we used it as a business and I can understand the appeal for many. Since I don’t eat hot dogs or commute to work much is lost on me. I like my weekly Whole Foods run and Amazon - at least for now - simplifies my life.
“If I can’t have it my way, no one can have it!!!”
“But he would see this country burn if he could be king of the ashes”
– Lord Varys, GOT
Down here in Panamá we have Pricemart which, at one time, was the Central American Costco. They were affiliated. It’s possible to still find Kirkland branded items on the shelves. I’m a member because of the pharmacy benefits they offer as I pay out of pocket for my drugs and with my cedula(permanent residency card)I get a nice discount. None of the stores sell gas though as I’m pretty sure the prices are controlled. They get adjusted up or down once a week. But back to Costco, before I left Western NC there was talk of a Costco coming into our area. After all, there were two within 20 miles of each other down the mountain in Spartanburg and Greenville, SC so we couldn’t figure why they wouldn’t build one more convenient to our market. Last I had heard though, those plans had been spiked. Oh well….
It was revealed today that Dolly died of cancer but there was nothing further said about what kind. She had said after her husband Carl died that she had sort of let her health go which so often happens with long term caregivers. Carl had Alzheimer’s disease so it had to have been really rough. She really was a marvelous lady who affected so many lives all over the world. In a world of Elons and trumps, be more like Dolly.
OK, so before I move to where I am now I had a Sam’s membership. When I moved here, there was not a sam’s so that’s why I joined Costco.. When I had Sam’s membership and when my middle son was very young, we would go to Sam’s and he would use his allowance which he earned by doing chores, he would buy candies like fun dip, and Tootsie roll pops that sort of thing, he would then take that and bike down like two blocks to the little league ballpark. He would sell his purchases individually to those at the ballpark for less than the concession stand at the ballpark. He made quite profit. Believe it or not, he was very shy but quite a salesman
And now I get to do a plug for volunteering. Today the topic started because of a new target is moving in behind our local Costco. I rarely go to target. So that discussion got started and I told those volunteers all about my purchases at Costco, including the vacuum packed rotisserie breasts, etc., etc., etc. They were thrilled to hear about that because they never knew what Costco did with their leftover rotisserie chicken.
Bought our washer and dryer at Costco. They double the warranty and their delivery/install guys are the best ever. All that and way cheaper than anyone else.