Costco

### Founded

July 12, 1976; 44 years ago (as Price Club)San Diego, California, U.S.September 15, 1983; 37 years ago (as Costco)Seattle, Washington, U.S.

### Area Served

United States, Canada, United Kingdom, Australia, Mexico, Japan, China, Taiwan, Spain, France, South Korea, Iceland

### Key People

Hamilton E. James(Chairman)W. Craig Jelinek(President and CEO)

**Costco Wholesale Corporation** (trading as **Costco**) is an American multinational corporation which operates a chain of membership-only warehouse clubs. As of 2015, Costco was the second largest retailer in the world after Walmart, and the world's largest retailer of choice and prime beef, organic foods, rotisserie chicken, and wine as of 2016. In 2019, Costco was ranked #14 on the Fortune 500 rankings of the largest United States corporations by total revenue.

Costco's worldwide headquarters are in Issaquah, Washington, an eastern suburb of Seattle. The company opened its first warehouse (the chain's term for its retail outlets) in Seattle in 1983. Through mergers, however, Costco's corporate history dates back to 1976, when its former competitor Price Club was founded in San Diego, California. As of December 31, 2019, Costco has a total of 785 warehouses: 546 in the United States (including the District of Columbia and Puerto Rico), 100 in Canada, 39 in Mexico, 29 in the United Kingdom, 26 in Japan, 16 in South Korea, 13 in Taiwan, 11 in Australia, 3 in Spain, 1 in Iceland, 1 in France, and 1 in China. The company plans to open a warehouse in New Zealand in 2021 (delayed until early 2022).

## History

### Price Club and the birth of the retail warehouse concept

Main article: Price Club

Costco's history began with Sol Price and his son, Robert, opening the first Price Club warehouse on July 12, 1976, on Morena Boulevard in San Diego, California, thus giving birth to a new concept: a retail warehouse club. The Price family placed Price Club Warehouse #1 inside a series of old airplane hangars previously owned by Howard Hughes; that warehouse, now known as Costco Warehouse #401, is still in operation today.

### Costco opens

Costco opened its first warehouse in 1983 in Seattle on September 15, by James (Jim) Sinegal and Jeffrey H. Brotman. Sinegal had started in wholesale distribution by working for Sol Price at FedMart; Brotman, an attorney from an old Seattle retailing family, had also been involved in retail distribution from an early age. He began his retail involvement as a grocery bagger. A second store opened in Portland in October, and a third in Spokane in December 1983.

### The "PriceCostco" merger

In 1993, Costco and Price Club agreed to merge operations themselves after Price declined an offer from Sam Walton and Walmart to merge Price Club with their warehouse store chain, Sam's Club. Costco's business model and size were similar to those of Price Club, which made the merger more natural for both companies. The combined company took the name **PriceCostco**, and memberships became universal, meaning that a Price Club member could use their membership to shop at Costco and vice versa. PriceCostco boasted 206 locations generating $16 billion in annual sales. PriceCostco was initially led by executives from both companies, but in 1994, the Price brothers left the company to form PriceSmart, a warehouse club chain in Central America and the Caribbean unrelated to the current Costco.

In 1997, Costco changed its name to Costco Wholesale Corporation, and all remaining Price Club locations were rebranded as Costco.

### Locations

As of October 2019, Costco has 785 warehouses worldwide as shown below:

* 546 in the United States
* 100 in 9 Canadian provinces
* 39 in Mexico
* 29 in the United Kingdom
* 26 in Japan
* 16 in South Korea
* 14 in Taiwan
* 11 in Australia
* 3 in Spain
* 1 in Iceland
* 1 in France
* 1 in Shanghai, China

### Other company milestones

On April 26, 2012, CNBC premiered its documentary, *The Costco Craze: Inside the Warehouse Giant*.

In 2014, Costco was the third largest retailer in the United States. That year Costco announced plans to open an online store in China using Alibaba Group.

### Costco today

In the United States, Costco's main competitors operating membership warehouses are Sam's Club and BJ's Wholesale Club. Costco employs 254,000 full and part-time employees worldwide. In 2016, Costco had 86.7 million members. This increased to 90.3 million members in 2017. and 94.3 million in 2018. In 2019, Costco had 98.5 million members.

Costco was the first company to grow from zero to $3 billion in sales in under six years. For the fiscal year ending on August 31, 2012, the company's sales totaled $97.062 billion, with $1.709 billion net profit. As of 2019, Costco is ranked #14 on the Fortune 500 rankings of the largest United States corporations by total revenue. The ACSI (The American Customer Satisfaction Index) named Costco number one in the specialty retail store industry with a score of 84 in 2014.

From December 2013, Costco's board of directors was chaired by co-founder Jeffrey H. Brotman and included James Sinegal, co-founder and director, and two officers of the company: president/CEO W. Craig Jelinek and CFO Richard A. Galanti. On August 1, 2017, Jeffrey Brotman died. As of August 2017, James Sinegal and W. Craig Jelinek remained on the board. Jim Sinegal stepped down in 2018.

## Sales model

A typical Costco warehouse carries only 3,700 distinct products, while a typical Walmart Supercenter carries approximately 140,000 products. If Costco feels the wholesale price of any individual product is too high, they will refuse to stock the product. For example, in November 2009, Costco announced that it would stop selling Coca-Cola products, because the soft-drink maker refused to lower its wholesale prices. Costco resumed selling Coca-Cola products the following month.

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 an average sunny day, it is normal for the center section of the warehouse not to have interior lights in use.

Although the brand engages in visible efforts to reduce costs, the stores themselves are expensive. In 2013, Costco spent approximately $80 million on each of the new stores it opened. The cost is partly driven by the cost of real estate, as each new store means that they need enough space to support a building of approximately 150,000 square feet (14,000 m2) in size, a large parking lot, and often a gas station.

The company has no public relations department and does not buy outside advertising.

The company's rule is that no item may be marked up more than 14% over cost and no Kirkland Signature item may be marked up more than 15% over cost. The company runs very lean, with overhead costs at about 10% of revenue and profit margins at 2%. Costco's annual membership fees (US$60/year for Gold Star, US$120/year for Executive as of 2019) account for 80 percent of Costco's gross margin and 70 percent of its operating income.

## Products

Costco has a frequently changing inventory and is known for carrying products for a time, then discontinuing them or using them as seasonal 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 stretch wrap off a pallet. It now sells many other products that are more difficult to handle, such as art, books, caskets, clothing, computer software, fine wine, furniture, home appliances, home electronics, hot tubs, jewelry, perishable items (such as dairy, fresh baked goods, flowers, fresh produce, meat, seafood), solar panels, tires, and vacuum cleaners. Many warehouses also have gas stations, pharmacies, hearing aid centers, optometrists, eye and sunglass centers, photo processors, and tire garages.<The produce items that require refrigeration are kept in a walk-in refrigerator, and several locations even have a walk-in refrigerator for dairy items.>

Some locations have liquor stores, often kept separate from the main warehouse 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 lost a lawsuit against the state of Washington in which it was seeking to purchase wine directly from the producer, bypassing the state retail monopoly. In Australia, Costco has to comply with regulations set by each state they choose to trade in; their first store in the Australian state of Victoria benefits from some of the most liberal alcohol licensing laws in that country, with retailers permitted to sell alcohol on shelves within the store, in a manner similar to most European countries. In the Canadian province of Quebec, beer and wine are sold within the stores from pallets.

### Kirkland Signature

"Kirkland Signature" is Costco's private label. It is sold by Costco at their website and warehouses, and is trademarked by the company. Costco introduced Kirkland Signature as its private label in 1992, deriving the name from the location of Costco's then corporate headquarters, Kirkland, Washington (their headquarters later moved, roughly 12 miles (19 km), to Issaquah, Washington). It accounts for almost a third of all Costco sales and is growing faster than Costco sales. Kirkland branded bottled water is produced by private label bottler Niagara Bottling.

The idea for the private label was to provide the appearance of brand name quality products at discounted prices. To counteract the consumer confidence problem common in store-name branding, Kirkland Signature occasionally employs 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.

## Publications

### *Costco Connection*

*Costco Connection* is a magazine sent free to the Costco executive members; it can also be accessed online by anyone, free of charge. Until end of 2018, the magazine was known as *The Costco Connection*. But with the January/February 2019 issue, "the", the definite article was dropped from the name and now the magazine is known as just *Costco Connection*.

The magazine established in 1987 as a newsprint publication and converted to a magazine in 1997. It features articles which regularly tie into the corporation along with business, celebrity features, cooking, entertaining, health, home improvement, and social articles, as well as coupons and ads. MediaPost reports: "While about 90% of the magazine's advertising is co-op, increasingly national advertisers such as Procter & Gamble are buying space, notes Roeglin -- presumably because of the pub's gargantuan reach and the data it has on its subscribers (whose average household income is $156,000 a year). 'We see about 56% of our subscribers a month buy something at one of our stores based on something they've read in the magazine,' says Roeglin." The magazine is one of the largest-circulation print monthly in the United States and presently is the third in circulation figures in the United States after *AARP The Magazine* and *AARP Bulletin*.

### Other publications

Costco also publishes the *Costco Household Almanac*, an annual edition started in 2007. The 200+ pages almanac carries a lot of helpful tips to Costco readers and carries ads from suppliers. Costco also publishes a cookbook series.

## Services

### Concierge service

Costco offers a free "concierge" service to members who purchase electronics, to help answer questions regarding setup and use and avoid potential returns due to not understanding how to use the products.

### Costco Auto Program

As of September 2015, Costco was the second largest auto seller in the US, just behind AutoNation. Costco regularly teams up with various automobile manufacturers to offer special deals to customers, e.g., Polaris (a leading seller of powersport vehicles) in 4Q2015 and General Motors from October 2015 through January 2016. *Addicted to Costco* lists the following as some benefits of the Costco Auto Program:

* A low, prearranged price for Costco members
* All available national manufacturer incentives
* More than 3,000 dealerships nationwide, with specially trained employees to assist Costco members

### Costco business services

On March 9, 2005, NOVA Information Systems (NOVA) partnered with Costco to market and support payment processing services to Costco Canada's Business Executive Members.

Costco acts as an investment broker and travel agent. Costco has an agreement with Ameriprise for auto and home insurance.

### Costco photo services

Costco Photo Center is a multi-functional photography printing lab offering services at the warehouses as well as through their web site, costcophotocenter.com. The website provides free unlimited digital file storage with a current membership. Previous to May or June 2010, Costco had an agreement with Mypublisher.com for custom book and calendar publishing. Now, they print the photobooks and calendars themselves.

In December 2005, Costco signed an agreement with PhotoChannel Networks Inc., whereby Costco could deploy the PNI Digital Media Platform to offer online photo printing for Costco members through the website.

On July 17, 2015, Costco disabled their online photo site. In common with other retailers, there is currently no confirmation about whether hackers had stolen Costco customers' photographs or data. As of August 1, 2015, Costco was estimating the website might return in mid-August, after a four-week outage.

### Costco Optical

Costco Optical ranks as the fifth-largest optical company in the US, as of 2015. Optometrists working at Costco locations will see patients without Costco memberships, although a membership is required to fill a prescription at the optical department.

### Costco Travel

Costco Travel is a wholly owned subsidiary of Costco Wholesale and offers leisure travel to Costco members of the United States and Canada. The program was established in 2000 as a service to Costco members. Costco Travel's offices are located in Issaquah, Washington, adjacent to Costco's corporate headquarters. Costco Travel employs over 700 travel professionals, all of them Costco employees.

The program offers vacation packages to the Caribbean, Europe, Florida, Hawaii, Las Vegas, Mexico, and the South Pacific. Other products include car rentals, cruises, guided vacations, and theme park packages. Select products feature additional benefits for Costco Executive Members.

The program is marketed directly to Costco members through various Costco avenues, including the *Travel Guide to Savings* (found in all U.S. Costco warehouses) and in the Travel section of Costco.com.

### Food service

Most, if not all, Costco locations have a food court. They can be indoors or outdoors, but the menu is essentially the same: hot dog with drink (one of the most popular items), pizza, frozen yogurt, Pepsico beverages, baked items, and sandwiches. Sometimes, items are added to the menu seasonally. Costco offers a quarter-pound 100% beef hot dog and 20 US fluid ounces (590 ml) drink (with refills) for US$1.50, the same price since 1985. Some US locations also offer Polish sausage or bratwurst in addition to hot dogs, at the same $1.50 price. In Australia, the hot dog is made of pork and is sold with a large soda for AUD$1.99. In Canada, the price for a hot dog and soda with refills is C$1.50. In Mexico, the hot dog is made of 100% beef and includes a drink (with refills) for MXN$35. In the UK, the hot dog is also made from beef and customers also get a drink (with refills) for £1.50. Costco sold more than 137 million quarter-pound (113 g) hot dogs in its food courts in 2017. In Taiwan and Japan, the hot dog is made of pork as well.

Cheese, pepperoni, veggie, or combo pizza is also available in most locations, and can usually be ordered to go, making Costco the 14th largest pizza chain in the U.S. in 2010. Frozen yogurt is also served in chocolate, vanilla, or swirl. Costco also offers fruit smoothies, latte freeze (without chocolate), mocha freeze (with chocolate), beef bake, chicken bake, turkey provolone sandwiches, twisted churros, chicken Caesar salads, beef brisket sandwiches, organic beef-based cheeseburgers, beef chili with beans, and in some locations, gelato. Various locations also began offering acai bowls in 2018. French fries are also offered in some locations. Some of the food court items are only available in certain countries. For example, the bulgogi bake is only available in Australia, Taiwan, Korea, and Japan; poutine is only available in Canada. There are, however, temporary menu items available exclusively in several countries, like the pastor taco-topped pizzas in Mexico. The nutrition data for the Costco Food Court items is posted online.

Due to slow sales, in 2009, the pretzel was replaced by the churro. In April 2013, Pepsi replaced all Coca-Cola fountain drinks at U.S. locations because Coke had raised its prices; this helped keep the hot dog combo with soda at its original US$1.50 price.

In select Costco food courts, Costco is selling cheeseburgers for a limited time to experiment sales. It will possibly be a new menu item if it has a success.

Due to the Coronavirus outbreak, many locations suspended all food court operations within the warehouse, opening them up weeks later to a limited take-out only menu and replacing fountain sodas with canned beverages. Many locations have had their seating area removed.

### Online shopping

On April 17, 2001, Costco Wholesale opened a B2B (Business to Business) online shopping site at *Costco.com* for faster and easier business shopping.

The domain *Costco.com* attracted at least 58 million visitors in 2008, according to a Compete.com survey. Costco.com is for United States members; costco.ca is for Canadian members, and other countries, such as Mexico, South Korea, Taiwan and the UK, each has its own online Costco shopping website.

Instacart offers Costco delivery in a select number of states including Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Missouri, North Carolina, New Jersey, New York, Oregon, Tennessee, Texas, Virginia, Washington, and the District of Columbia. No membership is needed to order from Costco on Instacart, but Instacart charges delivery fees and the prices may not necessarily be the same as in a Costco warehouse.

Similarly, in March 2017, Costco initiated a partnership with Shipt, an online grocery delivery service. Unlike Instacart, Shipt charges its own membership fee, $99 a year or $14 a month, in exchange for free delivery on orders over $35. As of November 2018, Shipt offers Costco delivery in select Florida markets.

In October 2017, Costco launched same-day and two-day grocery delivery options for members.Costco Business Centers provide a variety of different goods for clients that differ greatly from their traditional in-store wares. More than 70% of the items that can be acquired from a Costco Business Center cannot be found in a typical Costco store. They are primarily utilized by smaller businesses who seek to make purchases in bulk. There is a delivery charge of $25 for orders that are below $250.

### Costco credit card

On April 1, 2016, in US, Citigroup became the exclusive issuer of Costco's branded credit cards.

## International locations and other centers

Warehouses outside the U.S. are similar to the company's domestic locations, featuring generally identical layout, signage, and even parking lot markings. Food court menus are tailored to international tastes, with meat pies on offer in Australia; poutine in Canada; seafood-topped pizza in Asian locations; pastor taco-topped pizzas in Mexico; clam chowder in Japan, South Korea, and Taiwan; plokkfiskur in Iceland; and jacket potatoes in the UK. Additionally, Costco has led a strategic initiative to enhance the merchandise mix available at international warehouses by tailoring products to local tastes, offering a selection of both American and local products.

### Expansion worldwide

Costco announced the opening of 29 new locations in 2016, the most in one year since 2007. Span Construction, led by King Husein, has constructed almost all of Costco's buildings since 1989.

On August 27, 2019, Costco opened its first Chinese location, in Shanghai. The popular attention which greeted the store's opening led to its opening day being cut short over safety concerns.

### Largest location

In 2005, the world's largest Costco was located in Hillsboro, Oregon. In 2015, Costco completed an expansion in Salt Lake City, making it the new largest Costco at 235,000 sq ft (21,800 m2). In 2011, Costco's highest volume store was in Seoul, South Korea. Taiwan's Taichung ranks at the very top in the number of members and is second in the world in sales volume (the exact figures are confidential), behind South Korea's Yangjae store in Seoul; moreover, 13 Costco operations in Taiwan, three – Taichung, Neihu, and Chungho – rank in the top 10 in the world in sales volume.

### Costco Business Centers

Costco Business Centers are warehouses similar to regular Costco warehouses, and are open to all Costco members, regardless of membership type. Their merchandise, though, caters predominantly to enterprises, with a focus on small businesses. Business Centers do not carry most consumer items like clothing, jewelry, media, and tires, while carrying larger quantities and more options for the business products they do carry. They do not offer most of the consumer-oriented services found at regular Costco warehouses, but some locations do have a food court or a gas station or both. Also unlike regular warehouses, most Costco Business Centers have a Print & Copy Center which provides printing professional services. They have large parking spaces for trucks and are capable of delivering goods to businesses in bulk quantities. Finally, opening hours are shorter than regular warehouses (usually opening at 7:00 am on Mondays to Saturdays and closed on Sundays), while discounts and coupons for Business Centers are issued separately from regular warehouses.

#### Locations

As of June 2020, there are 19 Costco Business Centers in the United States, located in Orlando, Florida; Dallas, Texas; Minneapolis, Minnesota; Phoenix, Arizona; California (Commerce, Hawthorne, Hayward, North Hollywood, San Diego, South San Francisco and Westminster); Denver, Colorado; Morrow, Georgia; Bedford Park, Illinois; Hackensack, New Jersey; Las Vegas, Nevada; and Washington (Lynnwood, and Fife).

The first Costco Business Center outside the U.S. opened in Canada in Scarborough, Toronto in spring 2017.

### Vertical integration

Like many other retailers vertically integrating their food supply chains, Costco has brought in-house poultry production for their rotisserie chickens, which are a major driver of customer traffic and sales. This is to allow keeping their pricing intact while maintaining a consistent quality control of its chickens as a result of annual growth of per-capita chicken consumption in the United States.

## Discontinued concepts

### Costco Home

The first Costco Home warehouse opened in 1983, and was rebuilt / expanded in 2002, in Seattle. 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 in a warehouse-club setting. Costco claimed that, similar to its main warehouses, it accepted lower margins in return for greater volume with minimal 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. Costco also partners with Glentel subsidiary WIRELESS etc. to sell mobile phones and plans in Canada and Wireless Advocates in the US.

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