Wal-Mart isn't the biggest in every business. Costco Wholesale is the largest wholesale club operator in the US (ahead of Wal-Mart's SAM'S CLUB). The company operates more than 600 membership warehouse stores serving some 67 million cardholders in 40 US states and Australia, Canada, Japan, Mexico, Puerto Rico, South Korea, Taiwan, and the UK, primarily under the Costco Wholesale name. Stores offer discount prices on an average of about 4,000 products (many in bulk packaging), ranging from alcoholic beverages and appliances to fresh food, pharmaceuticals, and tires. Certain club memberships also offer products and services such as car and home insurance, mortgage and real estate services, and travel packages.
Costco Wholesale rings up the majority (72%) of its sales in the US. The company's 80-plus stores in Canada account for 16% of sales, with other countries, including Mexico, Japan, Australia, and the UK, contributing the rest. Costco operates in Taiwan and Korea through majority-owned subsidiaries.
Costco's retail operation numbered 608 warehouse stores in eight countries at the end of fiscal 2012 (ends August). Serving the retail stores is Costco Wholesale Industries, a division of the company, that operates manufacturing businesses, including special food packaging, optical labs, meat processing and jewelry distribution. To shop at Costco, customers must be members -- a policy the company believes reinforces customer loyalty and provides a steady source of fee revenue (2% of fiscal 2012 sales). Three types of annual memberships are available: Business ($50 each); Gold Star ($50, for individuals and their spouses): and Executive ($100, allows members to purchase products and services, including insurance, mortgage services, and long-distance phone service, at reduced rates). Costco also operates the e-commerce site costco.com.
After a blip during the recent deep recession when Costco's historically steadily-rising sales dipped by 1.5%, the warehouse club operator has returned to growth mode. In fiscal 2012 sales grew by more than 11% vs. the prior year to top $99 billion. Performance was driven by a 7% gain in same-store sales at the company's warehouse stores and higher gasoline prices, among other factors. Net income increased nearly 17% over the same period. Revenue from membership fees increased 11% in fiscal 2012 vs. the prior year, primarily due to new member sign-ups at warehouse stores open for more than a year, and the impact of raising annual membership fees.
In fiscal 2011 sales increased by about 14% vs. the previous year, while net income grew by 12%. Costco's sales performance benefitted from the addition of 20 net new warehouse clubs in 2011 and a 10% increase in sales at locations open at least one year. Membership fees increased by more than 10%, as the company sold more higher-fee Executive Memberships and enlisted more members. The strong performance in 2011 followed a good 2010 when sales grew by about 9%.
Facing competition from discounters, including Target, that don't charge a membership fee, as well as from archrival SAM'S CLUB, Costco has been busy expanding and retrofitting its warehouses (which average about 143,000 sq. ft.) to accommodate fresh food sections and other ancillary units, such as gas stations, optical departments, pharmacies, and food courts. Costco's foray into grocery sales is encouraging. Food and sundries accounted for about 55% of total sales in fiscal 2012, making Costco the third-largest seller of groceries in the US, behind Wal-Mart Supercenters and Kroger. Costco has expanded its premium private-label Kirkland Signature line of some 330 items (about 15% of sales) to 500 products. It also plans to grow its e-commerce business, Costco.com, which offers products not found in its stores and add more than a dozen new warehouse stores by the end of calendar year 2012. Despite intense competition in the warehouse club arena, Costco boasts nearly a 90% renewal rate in North America, and 86% worldwide. On the international front, the retailer is looking to take advantage of rising consumer demand in developing markets, especially in Asia. Key markets include Japan, Korea, and Taiwan. Also, the company opened its first location in Australia in mid-2009 and now has three clubs there. Closer to home, Costco bought its joint venture partner's, Controladora Comercial Mexicana, 50% stake in Costco Mexico for $789 million in 2012.