Costco Wholesale Corporation is a membership-only warehouse club that provides a wide selection of merchandise. As of July 2012[update], it is the second largest retailer in the United States, the seventh largest retailer in the world and the largest membership warehouse club chain in the United States.
Costco is headquartered in Issaquah, Washington, United States and was founded in 1976 in San Diego, CA with its first warehouse in Seattle. Today Costco has a total of 626 locations in the United Kingdom (25), Australia (3), Canada (85), Mexico (33), Taiwan (9), South Korea (9), Japan (15), and the United States (449).
Founded by James (Jim) Sinegal and Jeffrey H. Brotman, Costco opened its first warehouse in Seattle, Washington, on September 15, 1983. 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.][
Wal-Mart founder Sam Walton had plans to merge Sam's Club with Price Club. 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. 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 Costco in December 1994.
In 1993, when growing competition threatened both Price Club and Costco Wholesale, they entered into a partial merger just after Price’s earnings dropped to 40%. The new company, named PriceCostco, Inc., focused heavily on international expansion, opening stores in Mexico, South Korea, and England. Despite best efforts to recover losses, sales continued to drop. Disagreement between the two leaders, Robert Price and Jim Sinegal, regarding company direction and recovery policies soon left the merger in tatters.
In 1994, the breakup was formally announced. Sinegal continued to manage PriceCostco while Price’s breakaway company was named as Price Enterprises.
The first Price Club location was opened in 1976 in an old airplane hangar, previously owned by Howard Hughes, and is still in operation today (Warehouse No. 401, located on Morena Boulevard in San Diego).
In 1997, the company changed its name to Costco Wholesale and all Price Club locations were rebranded Costco.
CNBC premiered its documentary "The Costco Craze: Inside the Warehouse Giant" on April 26, 2012.
On March 26, 2001, Retalix Ltd. announced the signing of an agreement with the Costco Wholesale Corporation that called for the installation of the company's StoreLine Fuel software solutions across 152 Costco retail fuel outlets in the U.S.
In the United States, the main competitors operating membership warehouses are Sam's Club and BJ's Wholesale Club. Although Sam's Club has more warehouses than Costco, Costco has higher total sales volume. Costco employs about 174,000 full and part-time employees. As of February 2013[update], Costco had 68.2 million members.
Costco was the first company to grow from zero to $3 billion in sales in less than 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. Costco is 24th on the 2012 Fortune 500. 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.
As of October 2010[update], 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:
In the United States, Costco is closed on seven holidays:
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 because the soft-drink maker refused to lower its wholesale prices. Costco resumed selling Coca-Cola products on December 14, 2009. 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.
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%.
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. Memberships must be purchased in advance for one year. 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, United Kingdom 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 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.
As of November 2011[update], membership fees at Costco are $55 per year for a Gold Star (individual) or Business membership, which can be upgraded to Executive membership for an additional $55 per year. Along with the additional benefits the executive membership offers (e.g. 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.
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.
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. A Costco card issued in another country is valid in the U.K., 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.][
In Australia, membership is A$55.00 a year for a business membership, or A$60.00 a year for a Gold Star membership.
In Mexico, membership is MXN $450.00 a year for a Gold Star membership, or MXN $1000.00 a year for an Executive membership. 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.
Costco memberships can be refunded in full at any time before they expire. 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 TVs 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.
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."
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, 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. 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.
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 make purchases 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 in-store provided they pay in cash or approved debit cards for the remaining balance.
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 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.][ 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. 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 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.][
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 at Costco's website, Costco warehouses and on Amazon.com 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. Costco has a wide variety of changing inventory, known for carrying products for a time, then discontinuing them or using them as seasonal products.
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.
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.
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][ a highly regarded 1982 Mouton Rothschild wine was offered as well as other rare wines in rotation.][
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.
The domain costco.com attracted at least 58 million visitors in 2008 according to a Compete.com survey.
Costco Travel is a wholly owned subsidiary of Costco Wholesale, and offers leisure travel to Costco members of the United States. 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.][
The Costco Connection is a magazine sent free to members of the warehouse club Costco, but it can also be accessed online for free. The magazine includes articles which regularly tie into the corporation along with business, health and social articles.
Most Costco locations have a food court, offering a quarter-pound 100% beef hot dog or polish sausage and 20 oz drink (with refills) for $1.50, the same price since 1985. In Australia the hot dog is made of pork and is sold at A$2.49 with large soda. In Canada the price for a hot dog and 20 oz pop drink with refill is 1.50 CAD. In Mexico, the hot dog is made of pork, and includes a drink (with refills) for $25 MXN. In the UK, the hot dog is also made from beef and you also get a drink (with refills) for £1.50. Costco sold more than 82 million quarter-pound hot dogs in its food courts in 2008. 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 freeze (with chocolate) or latte freeze (without chocolate), chicken bake, turkey provolone sandwiches, 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. The nutrition data for the Costco Food Court items is posted online. 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.][ Pepsi will replace all Coca-Cola fountain drinks at US food service locations starting in April 2013, the hot dog-soda combo will continue to cost $1.50.
In 2010, Mercy for Animals conducted an undercover investigation at Buckeye Veal Farm, a veal supplier to Costco. Immediately following the investigative release, Costco adopted a policy against purchasing veal from producers that use the crate-and-chain production method. The case prompted Ohio decision-makers to vote in favor of a veal crate phase-out in the state.
In 2012, Mercy for Animals conducted an undercover investigation at a pork supplier to Costco, Walmart, Safeway, Kroger, and Kmart. Before the public release of the investigation, Costco announced they would begin requiring their pork suppliers to phase out gestation crates.
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 although there seems to be a move in 2012 to unionize some locations in Canada. 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. Only remotely similar to a union contract, the Employee Agreement sets forth such things as benefits, compensations, wages, disciplinary procedures, paid holidays, bonuses, and seniority. The employee 'agreement' is subject to change by Costco at any time and offers no absolute protection to the workers. 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.
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. Costco also uses Club Demonstration Services, based in San Diego, California.][ In Canada, demonstrations are done exclusively by Professional Warehouse Demonstrations. Demonstration employees receive a pay and benefit package that is less than that of Costco employees.][
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.][ 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. The merchandise mix available in warehouses is also tailored to local tastes, with a mix of both American and local products available.
As of April 18, 2013[update], Costco has 626 warehouses:
In 2005, the world's largest Costco was located in Hillsboro, Oregon, U.S. Costco announced it was opening 28 new locations in 2013, the most in one year since 2007.
Costco has experimented with other formats. As of February 2003, plans for Costco Fresh, a gourmet supermarket, did not get off the ground. 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.][
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. Delivery is available. Unlike traditional Costcos, products such as clothing, sporting goods, jewelry, tires, hearing aids, and optical products are not available. 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 October 2012, there are ten Costco Business Centers, located in California (Commerce, Hawthorne, Hayward, and San Diego), Washington (Lynnwood, Fife, Tukwila), Morrow, Georgia, Las Vegas, Nevada, and Phoenix, Arizona.
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 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.