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Costco, founded in 1983 in Seattle, Washington, is now the world's second-largest retailer, second only to Walmart. In 2021, Costco's global sales reached $192.1 billion, an increase of 18% year-on-year, with over 110 million members, including 25.6 million premium members. Moreover, in the fiercely competitive paid membership market, Costco's membership renewal rate remains above 90%. Over the past decade, Costco's average sales growth rate has been 9.1%, while Walmart's average sales growth rate during the same period was only 5.9%, making Costco far ahead of its competitors.

What is the real reason for Costco's success? The following analysis from "people, goods, and venues" will attempt to explain why Costco has become so successful.

People: Customers and Employees
1. Serving Customers

At Costco, there is an unwritten rule that if the gross profit margin of a product exceeds 14%, it must be approved by the CEO and the board of directors. If we look at the financial reports, Costco's gross profit margin is generally around 10%. Since the launch of the $1.50 hot dog in 1985, Costco has never raised the price.

"Retail Circle" believes that the essence of the paid membership business model is to make the company operate around "serving consumers" rather than "making money." Of course, in addition to the most intuitive benefit of cheap goods, Costco members also have exclusive benefits such as car tire repair, gasoline, water delivery, physical examinations, vision tests, and hearing tests.

Membership cards can also be refunded at any time. Costco, which almost never advertises, still has a high net promoter score of 79% due to its good reputation. Data shows that Costco's average customer spend is $136, which is 1.68 times that of Sam's Club and 2.47 times that of Walmart. 

2. Treating Employees Well
Costco's current CEO, Craig Jelinek, once said, "If you keep treating customers well, treating employees well, controlling expenses, good things will happen to you." Compared to other retailers in the industry, Costco rarely advertises or does public relations, and the money saved is mostly used for "treating customers and employees well and controlling expenses."

According to data, in the employee satisfaction survey in the United States, Costco ranks second, after Google, and ahead of Apple, Facebook, and Intel. This is not easy in the retail industry. Data shows that Costco employees earn an average of $20.89 per hour, while Walmart's competitors earn only $11.83 per hour, nearly twice as much as the latter.

Goods: Selection and Self-owned brand

1. "Selection": Less is More

In terms of product categories, Costco's focus is not on having a wide variety, but on having a reasonable selection. This is based on the company's years of operational experience. The reasons behind Costco's control of SKU numbers are two: one is it can reduce procurement costs and the other is it can reduce operational costs.

2. "Self-owned brand": Continuous Improvement
In addition to the "selection" strategy, Costco's other key competitive advantage in the "goods" category is its proprietary brand, Kirkland Signature. Established in 1995, Kirkland Signature is Costco's flagship brand, offering low-priced and high-quality products ranging from clothing, batteries, household items to food. Currently, it accounts for one-third of Costco's total sales.

Costco's proprietary brands usually adopt an OEM supply model and follow market trends. When a trend emerges, Costco can replicate it in its stores in the shortest possible time.

 In addition, Costco places great emphasis on the shopping experience of its members. For example, it periodically introduces new or low-priced products, changes the placement of many products, and even hides popular products in inconspicuous corners, playing hide-and-seek with its members. Occasionally, it also offers special sale items or high-quality products, but in limited quantities that sell out quickly. Therefore, shopping at Costco is sometimes like going on a "treasure hunt" or "adventure" for its users.

Location: Selection and Expansion

1. "Selection": A Keen Eye for Location
Costco has its own unique logic when it comes to selecting store locations. In China, many people now refer to Costco's location characteristics when buying a house. Although it is not located in the city center, it is close to the suburbs, with well-developed infrastructure, a better environment, and higher property values.

2. "Expansion": Steady and Stable
According to Retail Circle, Costco only opens 25 stores worldwide each year, which is relatively slow for a company of its size. In 2019, Costco finally opened its first store in the Minhang district of Shanghai, 36 years after establishing its first store in Seattle in 1983. Prior to this, it had opened a total of 115 stores in Japan, South Korea, Australia, New Zealand, the UK, France, Spain, and even Iceland.

In addition, unlike many multinational companies that enter overseas markets through joint ventures, sole proprietorship, franchising, or equity participation, Costco operates entirely on its own and only sends three or four experts to each new market, with other staff being hired locally. However, these three or four people have a deep understanding of Costco's culture and business model, with more than 10 years of work experience. Moreover, when entering a new market, Costco does not impose training on its employees, but first learns about the local culture and business methods, and then incorporates these experiences and achievements into its management culture. It can be said that Costco is running its business with a learning attitude.

Conclusion

For Costco, inspiring passion, integrity, and ownership among its employees, motivating users, and ensuring that they believe they can get the best shopping experience at Costco is the core of its corporate culture and the key to its success.