Costco Wholesale Corporation

Type	Public
Traded as	NASDAQ: COST
Industry	Retailing
Founded	1983 (Kirkland, Washington)
Founder(s)	James D. Sinegal Jeffrey H. Brotman
Headquarters	Issaquah, Washington, U.S.
Number of locations	592 (2011) United States (429) Canada (82) Mexico (32) United Kingdom (22) Japan (13) Taiwan (8) Korea (7) Puerto Rico (8) Australia (3)
Area served	Worldwide
Key people	James Sinegal, Founder Jeffrey Brotman, Founder & Chairman W. Craig Jelinek, CEO Richard Galanti, EVP & CFO Paul Moulton, EVP Joseph Portera, EVP Douglas Schutt, EVP Thomas Walker, EVP Dennis Zook, EVP
Products	Discount stores Merchandise Private label brands – Kirkland Signature
Revenue	US$88.915 billion (2011)[1]
Operating income	US$2.383 billion (2011)[1]
Net income	US$1.462 billion (2011)[1]
Employees	147,000 (2009)
Website	Costco.com

Costco Wholesale Corporation (NASDAQ: COST) is the largest membership warehouse club chain in the United States. As of July 2011^[update] it was the sixth largest retailer in the United States, and the seventh largest retailer in the world.^[2][3] As of October 2007^[update], Costco is the largest retailer of wine in the world.^[4]

Location[link]

Costco is headquartered in Issaquah, Washington, United States^[5] and was founded in Kirkland, Washington^{[citation needed]} with its first warehouse in nearby Seattle.^[6] Costco has locations in the United Kingdom, Canada, Australia, Mexico, Taiwan, South Korea, Japan, and the United States.^[7]

History[link]

Logo used until the early 1990s.

Founded by James (Jim) Sinegal and Jeffrey H. Brotman,^[8] Costco opened its first warehouse in Seattle, Washington, on September 15, 1983.^[9] 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.^{[citation needed]}

Wal-Mart founder Sam Walton had plans to merge Sam's Club with Price Club.^[10] In 1993, however, 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.^[11] PriceCostco was initially led by executives from both companies, but then Sol and his son Robert Price founded Price Enterprises and left Costco in December 1994.^[6]

The Costco in Moncton, New Brunswick

Entrance in Henderson, Nevada

The first Price Club location was opened in 1976 in an old airplane hangar,^[6][11] previously owned by Howard Hughes, and is still in operation today (Warehouse No.401 located in San Diego).

In 1997, the company changed its name to Costco Wholesale and all Price Club locations were rebranded Costco.^[6][11]

CNBC premiered its documentary "The Costco Craze: Inside the Warehouse Giant" on April 26, 2012.^[12]

Costco today[link]

In the United States, the main competitors operating membership warehouses are Sam's Club and BJ's Wholesale Club.^[13] Although Sam's Club has more warehouses^[14] than Costco, Costco has higher total sales volume.^[15] Costco employs about 142,000 full and part-time employees,^[7] including seasonal workers. As of September 2009^[update] Costco had 55 million members.^[16]

Costco was the first company to grow from zero to $3 billion in sales in less than six years.^[11] For the fiscal year ending on August 31, 2009, the company's sales totaled $71.42 billion,^[7] with $1.09 billion net profit.^[17] Costco is 25th on the 2010 Fortune 500.^[17] The ACSI (The American Customer Satisfaction Index) named Costco number one in the specialty retail store industry with a score of 83 in Q4 2008.^[18]

As of September 2010^[update],^{[19][dated info]} Costco's board of directors is chaired by co-founder Jeffrey H. Brotman and includes three officers of the company: CEO/co-founder James D. Sinegal, President/COO W. Craig Jelinek, and CFO Richard A. Galanti. There are also eleven independent directors: Hamilton E. James (the "Lead Independent Director"), Benjamin S. Carson, Sr., Susan Decker, Richard D. DiCerchio, Daniel J. Evans, William H. Gates, Sr., Richard M. Libenson, John W. Meisenbach, Charles T. Munger, Jeff Raikes, and Jill Ruckelshaus.

In the United States, Costco is closed on seven holidays: New Year's Day, Easter, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.

Sales model[link]

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 a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product. For example, on November 16, 2009, Costco announced that it would stop selling Coca-Cola products due to the soft drink maker refusing to lower its wholesale prices.^[20] Costco resumed selling Coca-Cola products on December 14, 2009.^[21][22] 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.

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.^[23]

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 markup on items to 15%.^[24]

Membership[link]

Costco in Tlalpan, Mexico City

Costco is only open to members and their guests, except for purchases of liquor and gasoline in some US states because of state law; and prescription drugs because of federal law.^[25] Memberships must be purchased in advance for one year (as of May 5, 2007). 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 (except for gas), and there is no surcharge. Canadian and United States Costco locations only accept American Express, PIN-based debit cards (Interac in Canada), Costco credit cards, Costco Cash Cards, cash, checks, and now EBT cards (food stamps). While Costco welcomes members to bring up to two guests, only the members may pay for items. American Express is the only accepted credit card (in the United States, Canada, and Japan) 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. Costco accepts Flexible Spending Account (FSA) debit cards for qualifying purchases at the pharmacy and optical departments in the US. Costco.com accepts the American Express, Visa, MasterCard, and Discover cards. The website also accepts Bill Me Later accounts for payment.^[26]

As of November 2011^[update] membership fees at Costco are $55 per year for a Gold Star (individual) or Business membership (older memberships are grandfathered in at $50 per year), which can be upgraded to Executive membership for an additional $55 per year.^[27] Along with the additional benefits the executive membership offers (e.g. car purchasing savings, home loans, car insurance, check printing services) Executive members also receive an annual "2% Rewards Check" of up to $750.00 from Costco on all purchases made, excluding select items such as gasoline, tobacco, stamps and in some states, alcohol.^[28]

In Canada, membership is CDN $55.00 a year for a Gold Star membership and includes a card for a spouse, or CDN $110.00 a year for an Executive membership.^[29]

In the United Kingdom, membership is restricted to certain groups only. Trade membership is available to the owners or managers of businesses for £20.00 (plus VAT). Trade members receive a complimentary spouse/partner card, and can purchase additional cards (at a cost of £12+VAT each) for employees. Qualified professionals such as solicitors, magistrates, accountants and engineers, as well as employees in certain specific sectors (such as medical services, education, local government, the civil service, airlines and banking) may apply for individual membership, which costs £25 including a spouse/partner card.^[30] It should be noted that a Costco card issued in another country is valid in the U.K.^[31], and as such, it would be possible for a U.K. resident to sign up elsewhere and use their card at home without meeting U.K. membership requirements.^{[citation needed]}

In Australia, membership is A$55.00 a year for a business membership, or A$60.00 a year for a Gold Star membership.^[32]

In Mexico, membership is MXN $450.00 a year for a Gold Star membership, or MXN $1000.00 a year for an Executive membership.^[33] Costco is only open to members for all services and purchases. Mexican locations only accept cash and Visa Electron debit cards; purchases with Mastercard or Visa credit cards have a surcharge of approximately 4%. Purchases with the Mexican Costco credit card keep cash prices.

Policies[link]

Australia's first Costco outlet, at Docklands, Victoria

Return policy[link]

Costco memberships can be refunded in full at any time before they expire.^[34] Costco guarantees almost all of their products with a full refund within a reasonable amount of 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. Also excepted are tires (which are covered by their manufacturer's separate defects and treadware warranties) and batteries (which are covered by a 36/100-month warranty, where they may be replaced for free in the first 36 months and are covered under a pro-rated warranty for months 37-100). Costco has negotiated with manufacturers to extend the manufacturers warranty to two years for new TVs and computers (five years on TV's sold by Costco in the UK). Costco also 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.^[34]

Food stamps in the U.S.[link]

Until 2009, Costco did not accept food stamps. As of March 14, 2009, an 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."^[35]

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,^[36] 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.^[37] The company subsequently announced plans to expand the program beyond New York City, targeting first the "hard-hit areas like Michigan, Indiana, and the central valley of California", expanding to "half its roughly 410 U.S. stores by Thanksgiving", and then going nationwide.^[38]

Cash Cards[link]

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, American Express, and Costco credit cards, 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, but is required to purchase gas. 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 in-store provided they pay in cash or approved debit cards for the remaining balance.^[39]

Products[link]

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.^[40] A membership is required to fill a prescription at the optical department.

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.^[41] 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.^[42] In Australia, Costco has to comply with regulations set by each state they choose trade in; their first store in the state of Victoria 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 manner similar to most European countries, yet they have chosen to have a separate checkout within the liquor section.^{[citation needed]}

Kirkland Signature[link]

Kirkland Signature branded bottled water

Kirkland Signature is Costco's store brand, otherwise known in the retail industry as an "own-brand," "house brand" or "private label." It is found exclusively at Costco's website and Costco warehouses 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.^[43]

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.^[44]

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.^[45]

Services[link]

This unreferenced section requires citations to ensure verifiability.

Costco acts as an investment broker and travel agent. Costco has an agreement with Ameriprise for auto and home insurance. In 2004 Costco offered an original artwork by artist Pablo Picasso on their online store; more recently^[when?] a highly regarded 1982 Mouton Rothschild wine was offered as well as other rare wines in rotation.^{[citation needed]}

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.

Online shopping[link]

The domain costco.com attracted at least 58 million visitors in 2008 according to a Compete.com survey.^[46] Costco has three e-commerce websites including costco.com for the US market, costco.ca for Canada and costco.co.uk for the United Kingdom.

Costco Travel[link]

Costco Travel is a wholly owned subsidiary of Costco Wholesale, and offers leisure travel to Costco members of the United States.^[47] 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 290 travel professionals, all of whom are Costco employees.

The program offers vacation packages to Hawaii, Mexico, the Caribbean, Europe, Orlando, the South Pacific, the Desert Southwest and Las Vegas. Other products include cruises, guided vacations, theme park packages, houseboat rentals, hotel-only lodging and luxury vacation rentals. 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), online in the Travel section of Costco.com.

[edit] Costco Connection

The Costco Connection is a magazine sent free to members of the warehouse club Costco and includes articles which regularly tie into the corporation along with business, health and social articles.

Food service[link]

Most Costco locations have a food court, offering a quarter-pound 100% beef hot dog or polish sausage and 20 oz drink (with refill) for $1.50, the same price since 1985.^[48] In Australia the hot dog is made of pork and is sold at A$2.49 with large soda. In Canada the price for hot-dog and 20 oz pop drink with refill is 1.50 CAD^[49] In Mexico, the hot dog is made of pork, and includes a drink (with refill) for $25 MXN. In the UK, the hot dog is also made from beef and you also get a drink (with refill) for £1.50. Costco sold more than 82 million quarter-pound hot dogs in its food courts in 2008.^[49] Pizza is also available in most locations as cheese, pepperoni, veggie, or combo, and can be ordered to go at many locations. Frozen yogurt is also served in chocolate, vanilla, or swirled together. Also offered are berry smoothies, mocha latte freezes, chicken bake, carne asada bake, sandwiches, turkey wraps, twisted churros, chicken Caesar salads, and in some locations, gelato. French fries are also offered in some locations. Due to slow sales, the pretzel was replaced by the churro.^[50] The nutrition data for the Costco Food Court items is posted online.^[51] In April 2010, certain Costco warehouses in the U.S. and Canada replaced their Coca-Cola drink fountain selections with Pepsi, accompanied with a change in labels on the disposable cups.^{[citation needed]}

Labor relations[link]

While some former Price Club locations in California and the northeastern United States are staffed by Teamsters,^[52] 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 2011^[update], non-supervisory hourly wages ranged from $11.00 to $21.00 in the United States, $11.00 to $22.15 in Canada, and £6.28 to £10.50 in the United Kingdom. In the US, eighty-five percent of Costco's workers have health insurance, compared with less than fifty percent at Walmart and Target.^[53]

Product-demonstration (e.g., food samples) employees work for an outside company. In the western U.S., the company is called Warehouse Demo Services, Kirkland, Washington.^[54] Costco also uses Club Demonstration Services, based in San Diego, California.^[55] In Canada, demonstrations are done exclusively by Professional Warehouse Demonstrations.^[56] Demonstration employees receive a pay and benefit package that is less than that of Costco employees.^{[57][unreliable source?]}

International[link]

Warehouses outside the US are similar to those in the US. Layout, signage, and even parking lot markings are generally identical to warehouses in the US.^{[citation needed]} Food court menus are tailored to international tastes, with poutine on offer in Canada, seafood-topped pizza available in Asian and Mexican locations, clam chowder in Japan, Taiwan & South Korea, jacket potatoes in the UK and meat pies in Australia.^[58] The merchandise mix available in warehouses is also tailored to local tastes, with a mix of both American and local products available.

Locations[link]

As of September 3, 2011 (2011 -09-03)^[update], Costco has 600 warehouses:^[59]

• 437 in the United States (including 4 in Puerto Rico)
• 82 in Canada
• 32 in Mexico (50–50 joint venture with Comercial Mexicana)
• 22 in the United Kingdom. The latest to open is in Coventry.
• 13 in Japan. The latest to open is in Kobe
• 8 in Taiwan
• 7 in South Korea. The latest to open is in Suyeong-gu, Busan.
• 3 in Australia (Melbourne, Sydney, and Canberra)

In 2005 the world's largest Costco was located in Hillsboro, Oregon, U.S.^[60][61]

Other wholesale formats[link]

Costco has experimented with other formats. Plans for Costco Fresh, a gourmet supermarket, were abandoned in February 2003. The membership-based format was to include a pharmacy, bakery, olive bar, deli, cafe, garden center and photo and optical departments, with products packaged in smaller quantities.^[62]

Costco Business Center[link]

Costco Business Centers carry restaurant, hospitality, janitorial, convenience store, and professional office supplies; items are offered in bulk or in smaller quantities, and selection for a given category of product is much broader.^[63] Delivery is available. Unlike traditional Costcos, clothing, sporting goods, jewelry, tires, hearing aids, and optical products are among the items not available.^[63] A limited assortment of over-the-counter drugs and toiletries are sold, though there is no pharmacy. Some locations have a gas station and/or food court. All except San Diego have a Print & Copy Center.

As of September 2010, there are eight Costco Business Centers, located in California (Commerce, Hawthorne, Hayward, and San Diego), Washington (Lynnwood and Fife), Las Vegas, Nevada, and Phoenix, Arizona.^[59]

Costco Home[link]

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^[64] 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.^[65] The company cited cutbacks in consumer spending on home products and its interest in focusing on its core business as the main reasons.

See also[link]

• BJ's Wholesale Club
• Bulk foods
• Sams Club
• Walmart

References[link]