Wal-Mart isn't a behemoth in every business. Costco is the nation's largest wholesale club operator (ahead of Wal-Mart's SAM'S CLUB). The firm operates more than 640 membership warehouse stores. Primarily under the Costco Wholesale banner, it serves some 71 million members in 40-plus US states, as well as in Australia, Canada, Japan, Mexico, Puerto Rico, South Korea, Taiwan, and the UK. 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 85 stores in Canada account for 16% of sales, with other countries, including Mexico, Japan, Australia, and the UK, contributing the rest of its revenue. Costco operates in Taiwan and Korea through majority-owned subsidiaries.
Costco's retail operation numbered 634 warehouse stores in eight countries at the end of fiscal 2013 (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 2013 sales). Three types of annual memberships are available: Business ($55 each); Gold Star ($55, for individuals and their spouses): and Executive ($110, 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.
It generates revenue from six major categories: sundries, hardlines, softlines, food, fresh food, and ancillary and other. It generates more than half of its revenue, 56% in fact, from sundries, food, and fresh food. That explains the numerous food sample stations provided to peckish consumers throughout the stores.
Sales and Marketing
The company aims to offer its members a broad range of high-quality merchandise at consistently lower prices than they can find elsewhere. Its merchandising strategy is to limit certain items to fast-selling models, sizes, and colors. By doing this, Costco is able to limit its number of stock keeping units (SKUs) to about 3,700 per warehouse while discount retailers, supermarkets, and supercenters carry many more.
Costco uses several marketing and promotional tactics to reach existing and prospective members. It typically promotes new warehouse openings, sends direct mail pieces to potential new members, and employs a regular direct-marketing program. The program, which targets existing members to promote selected merchandise, consists of The Costco Connection magazine, coupon mailers, handouts, and emails from costco.com, costco.ca, and costco.co.uk.
Costco.com offers products not found in its stores.
The warehouse club operator is in growth mode. In fiscal 2013 sales grew by about 6% vs. the prior year to top $105 billion from $99 billion. Performance was driven by same-store sales at the company's warehouse stores, among other factors. During the reporting period, its members shopped more frequently and spent more per visit.
Facing competition from discounters, including Target, that don't charge a membership fee, as well as from rival 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. Costco has become the third-largest seller of groceries in the US, behind Wal-Mart Supercenters and Kroger. The company has also expanded its premium private-label Kirkland Signature line of some 330 items to 500 products.
It's also aggressively expanding its portfolio of stores in both the US and overseas. In fiscal 2013 Costco opened 26 new warehouses; it has plans to open up to 36 more in 2014. 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.
Despite intense competition in the warehouse club arena, Costco boasts nearly a 90% renewal rate in North America and 86% worldwide.
Mergers and Acquisitions
Costco bought its joint venture partner's, Controladora Comercial Mexicana, 50% stake in Costco Mexico for $789 million in 2012.