Costco

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Costco Wholesale Corporation

Type	Public (NASDAQ: COST)
Founded	1983
Headquarters	Issaquah, Washington
Key people	James Sinegal, Founder & CEO Jeffrey Brotman, Founder & Chairman Richard Galanti, CFO Dick DiCerchio, COO
Industry	Retailing (Warehouse club)
Products	Merchandise Private label brands - Kirkland Signature
Revenue	$71.0 billion USD (2008)
Employees	142,000
Website	www.Costco.com

Costco Wholesale Corporation (NASDAQ: COST) is the largest membership warehouse club chain in the world based on sales volume. It is the fifth largest general retailer in the United States. ^[1]

[edit] Location

Costco is headquartered in Issaquah, Washington, United States and was founded in Kirkland,^[2] with its flagship warehouse in nearby Seattle.^[3] Costco's Canadian operations are based in Ottawa, Ontario and their Australian operations are based in North Ryde, New South Wales, whilst they do not operate any stores in this state, rather trading only in the southern state of Victoria.^[4]

[edit] History

The Costco in Moncton, New Brunswick was branded as a Price Club upon its completion in 1995. Two years later it was re-branded as Costco Wholesale due to the merger between Price Club and Costco

Founded by James (Jim) Sinegal and Jeffrey Brotman, Costco opened its first warehouse in Seattle, Washington, on September 15, 1983.^[5] Sinegal had started in wholesale distribution by working for Sol Price at both FedMart and Price Club. Brotman, an attorney from an old Seattle retailing family, had also been involved in retail distribution from an early age.

In 1993, Costco merged with Price Club (called Club Price in the Canadian province of Quebec). Costco’s business model and size were similar to those of Price Club, which was founded by Sol and Robert Price in 1976 in San Diego, California.^[6] Thus, the combined company, PriceCostco, was effectively double the size of each of its parents. Just after the merger, PriceCostco had 206 locations generating $16 billion in annual sales. PriceCostco was initially led by executives from both companies, but then Sol and his son Robert Price founded Price Enterprises and left in 1994.

Prior to the 1993 Price merger, Wal-Mart founder Sam Walton wanted to merge Sam's Club with Price Club.^[7]

The very first Price Club location was an old airplane hangar, previously owned by Howard Hughes, and is still in operation today (Warehouse #401 San Diego).

In 1997, the company changed its name to Costco Wholesale.^[8]

[edit] Costco today

Costco in California. Notice the electric car charging stations.

Entrance of a typical Costco warehouse club.

The main competitor in the membership warehouse space is Sam's Club. Although Sam's Club has more warehouses^[9] than Costco, Costco has higher total sales volume.^[10] Costco employs about 142,000 full- and part-time employees,^[11] including seasonal workers. It has 57 million members. For fiscal year 2008, which ended on August 31, 2008, the company's sales totaled $71.0 billion^[11]. $1.3 billion of the revenue was net profit.^[12] Costco is #29 on the Fortune 500.^[12] The ACSI (The American Customer Satisfaction Index) named Costco number one in the retail industry with a score of 81 in 2006. ^[13]

In the United States, Costco is closed on the following holidays (most other major retailers stay open on all of these dates except Thanksgiving and Christmas):

• New Year's Day
• Easter
• Memorial Day
• Independence Day
• Labor Day
• Thanksgiving
• Christmas

Costco became the first company ever to grow from zero to $3 billion in sales in less than six years.^[14]

[edit] Other wholesale formats

• Costco Business Center

There are a growing handful of Costco Business Centers, all of which offer delivery via a private fleet of trucks. Some locations have a warehouse selling floor open to Costco members who wish to shop in person, while others are strictly delivery only. A new Business Center, converted from an existing Costco location, opened in Las Vegas, Nevada in early 2009. Two additional locations are slated for California in the first half of 2009. ^[15]

• Costco Home (defunct)

The first Costco Home warehouse debuted in 2002 in Kirkland, Washington. The warehouse's concept was to combine the value, setting and members-only elements of Costco's warehouse clubs with the product array one would find at an upscale home store, such as Fortunoff or Crate & Barrel. The Costco Home warehouses sold furniture, housewares, kitchen products and accessories from higher-end brands such as Lexington, Ralph Lauren and Waterford^[16] in a warehouse-club setting. Costco claimed that, similar to its main warehouses, it accepted lower margins in return for greater volume and overhead.

Over time, the concept was adjusted to include home electronics, some major appliances, office furniture, and a large selection of outdoor furniture and window treatments.

On April 2, 2009, the company announced that it would be abandoning its Costco Home concept, closing the two existing stores in Kirkland, WA and Tempe, Arizona on July 3, 2009, and abandoning plans for a third store on the West Coast.^[17] The company cited cutbacks in consumer spending on home products and its interest in focusing on its core business as the main reasons.

• Costco Fresh (defunct)

Plans for Costco Fresh, a gourmet supermarket, were abandoned in 2004.

[edit] Sales model

Typical Costco warehouse interior

Costco focuses on selling products at low prices, often at very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Furthermore, Costco does not carry multiple brands or varieties where the item is essentially the same except when it has a house brand to sell, typically under the Kirkland Signature label. This results in high volume of sales from single vendor, allowing further reduction in price, and reducing marketing costs. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors.

Currently membership fees at Costco are $50 per year for Goldstar and Business Memberships, which can be upgraded to Executive membership for an additional $50 per year. Along with the additional benefits the executive membership has (e.g. car purchasing savings, home loans, car insurance, check printing services) executive members also receive an annual "2% Rewards Check" of up to $500.00 from Costco on all purchases made (excluding select items such as gasoline, alcohol, and tobacco).

In the UK, membership is £20.00 for Trade membership (plus VAT) which includes a card for a spouse. People who work for the National Health Service or any other government employee are entitled to an individual membership, which costs £25.

In Australia, membership is AUD$50.00 a year for a business membership, or AUD$60.00 a year for a 'Gold Star' membership^[18].

Costco is only open to members and their guests, except for purchases of liquor and gasoline in some U.S. states due to state law; and prescription drugs due to federal law. Memberships must be purchased in advance for one year (as of May 5, 2007).^[11] Purchases made at Costco's website do not require a membership; however, a 5% surcharge is added to purchases made by non-members. Purchases made with Costco Cash Cards also do not require a membership, and there is no surcharge. Canadian and United States Costco locations only accept American Express, PIN-based debit cards (Interac in Canada), cash, and checks. Guests of members are not allowed to write checks. American Express is the only accepted credit card (in the United States and Canada) because they charge Costco very low interchange fees (a percentage of revenue from total sales made). As Costco's margins are low in comparison to other retailers^{[citation needed]}, they cannot accept the fee without raising prices. This is an unusual relationship for American Express, which typically charges higher fees to retailers than MasterCard or Visa.^{[citation needed]}

In the UK credit cards are not accepted at all, and customers must pay by cash or debit card.^{[citation needed]} There are ATMs at most branches.

Lighting costs are reduced on sunny days, as most Costco locations have several skylights. During the day, electronic light meters measure how much light is coming in the skylights and turn off an appropriate percentage of the interior lights. During a typical sunny day, it is very common for the center section of the warehouse to have no interior lights powered on.^{[citation needed]}

Most products are delivered to the warehouse on shipping pallets and these pallets are used to display products for sale on the warehouse floor. This contrasts with retail stores that break down pallets and stock individual products on shelves. Costco limits its price mark up on items to 15%.^[19]

[edit] Food service

This section does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (December 2008)

A food concession stand at the Costco warehouse in Overland Park, Kansas

Most Costco locations have either a food court or a hot dog cart. Both offer a quarter-pound 100% beef hot dog or Polish sausage and 20 fluid oz drink (with free refill) for $1.50, the same price as when (pre-merger) Costco opened in 1983. Pizza is also available in most locations as cheese, pepperoni, or combination. Frozen yogurt is also served in chocolate, vanilla, or swirled together. Also offered are very berry smoothies, mocha latte freezes, chicken bake sandwiches, turkey wraps, twisted churros, and chicken caesar salad. French fries are also offered in some locations. Due to slow sales, the pretzel was replaced by the churro.

[edit] Costco Cash Cards

Costco Cash Cards can be purchased in the warehouse and members can load them with money to make non-cash purchases at all Costco warehouses in the United States and Australia. Because Costco gas stations take only Costco Cash, debit cards, and American Express, people who can only pay for gas by check or cash must purchase a Costco Cash Card inside the building before filling up. A Costco Membership is not required to purchase an in-store item with a Costco Cash Card. A non-member may not purchase or re-load a Costco Cash Card, however, they may spend more than the total value of their cash card provided they do not write a check for the remaining balance.

[edit] Return policy

Costco memberships can be refunded in full at any time before they expire. Costco guarantees almost all of their products with a full refund at any time. Exceptions include televisions, projectors, computers, cameras, camcorders, digital audio players, and cellular phones; these may be returned within 90 days of purchase for any reason for a refund. After 90 days those returns must be done through the manufacturer according to the terms of the warranty. Costco has negotiated with manufacturers to extend the manufacturers warranty to two years for new TVs and computers. Costco also offers a free "concierge" service to members that purchase electronics, to help answer questions regarding setup and use and avoid potential returns due to not understanding how to use the products.

[edit] Online

The domain costco.com attracted at least 58 million visitors annually by 2008 according to a Compete.com survey. Costco has two e-commerce websites, Costco.com for the US market and Costco.ca in Canada.

[edit] Food stamps

Costco does not accept food stamps. A March 14, 2009 article in the Pittsburgh Post-Gazette quoted Jim Sinegal, co-founder and president of the company, as saying, "Generally we don't have customers who use food stamps." ^[20]

In response to the poor economy, as well as competitor BJ's Wholesale Club's decision in April to accept electronic food-stamp benefits chainwide^[21], Costco announced in May 2009 that it will accept food stamps on a trial basis in two New York City stores starting in June 2009 and depending on its success, might expand it to all New York City stores. ^[22] The company does not have any plans to expand the program beyond New York City and said it chose the trial locations of Astoria, Queens and Sunset Park, Brooklyn, due to the high concentration of food stamp recipients in those areas, though an article in BNET Retail also cited the fact that Costco's major NYC-competition, BJ's Wholesale Club, already accepts food-stamp benefits chainwide as a major factor in the decision.

[edit] Products

Over the years, Costco has gradually expanded its range of products and services. Initially it preferred to sell only boxed products that could be dispensed by simply tearing the shrinkwrap off a pallet. It now sells many other products that are more difficult to handle, such as fresh produce, meat, dairy, seafood, fresh baked goods, flowers, clothing, books, computer software, vacuums, Home appliances, home electronics, solar panels, jewelry, tires, art, fine wine, hot tubs, furniture and caskets. Many warehouses have tire garages, pharmacies, hearing aid centers, optometrists, photo processors, and gas stations. Optometrists working at Costco locations will see patients without Costco memberships.

Costco Optical ranks as the fourth-largest optical company in the US.^[23] To fill prescriptions through the optical department, membership is required.

Some locations have liquor stores, often kept separate in order to comply with liquor license restrictions. In some states (such as Texas), the liquor store must be owned and operated by a separate company with separate employees. In 2006, Costco won a court decision against the state of Washington allowing it to purchase wine directly from the producer, bypassing the state retail monopoly.^{[citation needed]}. In Australia, Costco will need to comply with regulations set by each state they choose trade in, their first store in the state of Victoria luckily benefits from some of the most liberal alcohol licensing laws in the country with retailers permitted to sell alcohol on shelves within the store, in a similar manner to most European countries.

Costco also acts as an investment broker and travel agent. They have also introduced an automobile purchasing program where members can purchase new cars at specially arranged prices. They also have an agreement with Ameriprise for auto and home insurance.

In 2004 Costco offered an original artwork by artist Pablo Picasso on their online store.^{[citation needed]} More recently a "100 point" 1982 Mouton Rothschild wine has been offered as well as other rare wines in rotation.^{[citation needed]}

[edit] Kirkland Signature

Kirkland Signature logo

Kirkland Signature branded bottled water

Kirkland Signature is Costco's store brand, otherwise known in the retail industry as an "own-brand" or "house brand." It is found exclusively at Costco stores and is trademarked by the company. The name derives from the fact that Costco's corporate headquarters was located in the city of Kirkland, Washington, between 1987 and 1996.^[24]

Costco introduced Kirkland Signature as its house brand in 1995. The idea was to identify categories in which a private label product could provide brand name quality at discounted prices.^[25]

To counteract the consumer confidence problem common in store branding, Kirkland Signature sometimes relies on co-branding. According to Costco, while consumers may be wary of same-store-branding, they are less likely to be wary of brands that they are familiar with and trust.^[26]

Kirkland Signature products are generally rated highly. Consumer Reports magazine has given high ratings for several products including batteries and laundry detergent. A number one rating was given to Kirkland Signature anodized cookware which sells for significantly less than some comparable products.

[edit] Working at Costco

While some former Price Club locations in California and the northeastern United States are staffed by Teamsters, the majority of Costco locations are not unionized. The non-union locations have revisions to their Costco Employee Agreement every three years concurrent with union contract ratifications in locations with collective bargaining agreements. Similar to a union contract, the Employee Agreement sets forth such things as benefits, compensations, wages, disciplinary procedures, paid holidays, bonuses, and seniority. As of March 2008, non-supervisory hourly wages range from $11.00 to $20.00 in the United States, $11.00 to $22.15 in Canada and £6.28 to £10.00 in the United Kingdom. In the US, eighty-five percent of Costco's workers have health insurance, compared with less than half at Wal-Mart and Target. ^[27]

Product-demonstration (e.g., food samples) employees are employed by an outside company. In the western USA, the company is called Warehouse Demo Services, Kirkland, Washington.^[28] Costco also uses Club Demonstration Services, based in San Diego, California.^[29] In Canada, demonstrations are done exclusively by Professional Warehouse Demonstrations. ^[30]

[edit] International

Branches outside the US are identical to those in the US. Warehouse layout, signage, food on sale in the kiosk and even car park markings are identical to those branches in the US. This is unusual in international companies as most have features unique to the country in question.

[edit] Locations

As of 17 June 2009 (2009 -06-17)^[update], Costco has 556 locations.

• 407 in the United States and Puerto Rico
• 77 in Canada
• 31 in Mexico (50-50 joint venture with Comercial Mexicana)
• 21 in the United Kingdom
• 8 in Japan (9 Stores from July 7th - opening a new store in Shin Misato-Saitama)
• 6 in South Korea (7 Stores from July 8th - opening a new store in Busan)^[31]
• 5 in Taiwan (6 Stores from July 9th - opening a new store in Hsinchu)
• 1 in Australia, the first Australian store opens in 5 weeks at Melbourne Docklands^[32].

The world's largest Costco is located in Hillsboro, Oregon, USA.^[33]

[edit] See also

Companies portal

• Sam's Club
• BJ's Wholesale Club

[edit] Notes and references

This article was originally based on material from the Free On-line Dictionary of Computing, which is licensed under the GFDL.

[edit] External links

Wikimedia Commons has media related to: Costco

• Official website
• Company History
• How Costco Became the Anti-Wal-Mart - NY Times
• Why Costco is so addictive