Saturday, April 28, 2012

Something Different: The Costco Craze

by Amy K. Bredemeyer

I have a Costco membership. My husband and I got one about 18 hours after we moved to California back in 2009. We have kept it going ever since, and have used it in four states now, I believe. We only go once or twice a month, and we haven't bought anything really big there, like the televisions and jewelry you hear about. We do have a running joke, however, that we cannot get out of the store for under $70, regardless of what is on the shopping list. I think we've done it twice, actually... and, on both of those occasions, I still walked out with more than I had planned. So, when I watched the Costco special report, I found that it hit pretty close to home, and you might feel similarly when you take a look at some of the facts presented!
The Costco Craze: Inside the Warehouse Giant 
- Costco has 64 million members worldwide (with almost a 90% renewal rate each year), and 3 million are at Costco on any given day. [so, clearly, many people must go way more often than we do.] The average member is a college-educated homeowner earning about $100k/year. And, as of January 2012, they had 598 stores worldwide (433 in the US, 82 in Canada, 32 in Mexico), and they are trying to increase their international market, which is around 10% of Costco's business.

- An early question is posed - why go to Costco, a store where you have to pay to shop, there are no advertisements, they don't bag your groceries, and there are no signs or directories. [It's not the only store you have to pay to go to, so that part doesn't bother me. In California, we have several counties that don't provide bags anymore, so that doesn't really change much, either. The lack of signage, however, is rough. Especially because the only employees I can ever find are the sample people, who don't know anything most of the time. It's not a big enough reason to make me avoid the place, though.] 

- They do $93 billion a year in sales, for a profit of $1.5B. Sales include $4.5B in meat, $4B in produce, $2B in TVs, and just under $1B in wine ($63M on store brand), making them one of the largest wine retailers in the world! Their single biggest-selling product, however, is toilet paper. They sold 1B+ rolls last year, bringing in $400M. We see how they make decisions on wine, toilet paper, and toys (another $200M a year!).  

- They make a lot of money, but they sure don't sell a lot of variety. Three-quarters the store is staples, with the rest being "treasures" (TVs, watches, handbags, wedding dresses, diamonds) which circulate all the time. [I'll vouch for that! I saw a pair of boots that I liked when we were frequenting a Costco in NJ, and decided to wait until the following month to pick them up... still winter, but no more boots.] They also only stock around 4,000 items - in comparison to supermarkets carrying about 40,000 and Walmart carrying around 100,000. The secret? Stocking only a few in each category - like a single ketchup. [this is a small downfall for me, though. I only buy Bumblebee brand tuna, for instance, which isn't carried there. Similarly, we like the "spirals" shape of macaroni in our household, which they don't stock. The biggest problem, however, is that our two local stores both flip-flop on which is carrying "our type" of bottled water (and sometimes, neither has it stocked).]

- The prices are about 30% lower than supermarkets, as nothing is marked up more than 15%, and other stores typically have a 25% (grocery stores) to 50% (department stores) mark-up. [still, some items go on sale monthly at grocery stores (like chips, bottled juice, and chicken), and they become cheaper to buy at grocery stores, especially if you also have coupons.]

- The special stated the biggest criticisms of Costco are having to buy in large quantities and having to wait in long lines. [eh. I expect the large quantities thing, especially since that helps drive down the price. The long lines are a pain, but some stores have a good system for this - a guy with a portable scanned rings in your entire order while you're in line, so when the cashier slides your membership card, the order is already there, so you can just pay and go. My biggest complaint is that they don't take coupons - and don't bother clipping the ones they mail you - those savings ring up automatically anyway.]

- We also were treated to some background on the company. Former CEO and co-founder Jim Sinegal visits all of the stores annually, traveling 200 days per year. He was always very accessible - no handlers or PR staff. When he was 18 and in college, he fell in love with the general store where he worked. He later formed Costco, and, in the 90s, they merged with PriceClub to get a bigger hold on the market than Sam's Club. [I remember the first time I was in a Sam's Club... I was nine years old and had vomited at school so my dad had to pick me up. He had a newspaper-clipped trial pass for the store, so we went there and walked around with my toddler-aged sister. He bought lobster tails and chicken cordon bleu, among other things, and I got my first set of scented markers.] It's a good place to work, too, with very little employee turnover, compared to other retailers. And, 90% of the workforce is offered health coverage. They have had their share of hardships, though... some brands won't sell to Costco because of their practices - but many come around. They also acquire products through third-party distributors - like Calvin Klein jeans and Waterford crystal.
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