Now I am
an executive member at the Costco Very Berry with extra berries. We came for
pumpkin pie, actually. And the king crab legs. I think some of their
customer base is absolutely addicted to Costco. Welcome to Costco where
everything is huge and it's been like this
for 30 years. From the carts to the
warehouses to the products themselves. It's a store
fit for giants. It's designed as much for
a forklift truck as it is for people. That sense of scale is
part of what the Costco experience and the warehouse
experience is all about. And Costco has made
billions in revenue from its no frills model
significantly more than its U.S. competitors. Nothing in a store
is placed by accident. Take for instance staples
like milk and eggs. You have to travel all this
way just to find the dairy. This leads to
something Costco calls "treasure hunting." The more you see, the
more you discover, the more you end up putting
in your cart. You end up buying other
things you probably don't really need. You almost have to go
in with blinders on and walk right past the things
that you are tempted to buy. But buying in bulk
isn't for everyone. For me personally it would be
a waste of money to get a Costco membership because
I can't use up 25 pounds of flour or, you
know, some of the really big bulk items. It just isn't worth
it for me. The average Costco
transaction is between $130 and $140. But members
have been known to spend much more. I thought I would
spend about $25. And I ended up
spending over $700. $187.65. $221 and change. You can
come in here and spend about $250, $300 easy. They have a very
loyal membership base. Ninety percent of their
members renew their membership. Being a wholesale club member
comes at a price. The interesting thing about
Costco is that when you speak to a
consumer, they go quite frequently. And I have spoken to people
that go and drop into a Costco three, four
times a week. It is a
very frictionless experience. Moving through a Costco
is pretty seamless. There's minimal signage, the aisles are super wide,
and the carts glide on the concrete floors. There are free samples
and even the occasional massage demonstration. You're free nay, encouraged
to wander and take your time. I have so many memories of
being a kid with my sister like running around
the store playing tag or like hide and seek
because it's so easy to hide in there. My parents would leave me
on the couch there and I'd go through
all the books. They'd come back to pick me
up when it's time to leave. The longer I can
hold you in the store, the more likely I'm going to
get more money out of your pocket. I'm a huge fan of
the Costco food court. The food court. Food court. I only went to Costco with
my parents just to go the food court. That front snack bar is both
a snack bar, but it is also a parking lot and
it's a parking lot for your two-legged pets called
often children and husbands. This is my
favorite type of samples. What is it? Like the big ones? The big
ones, right? There's a direct correlation between
people who sample and the amount of
money you spend. Aside from their
famous $1.50 hotdog combo, Costco is
well-known for its in-house brand
Kirkland Signature. Kirkland paper goods, bottled
water, and olive oil are some of their
most beloved products. But Costco isn't all bulk
toilet paper and coffee beans. It also carries
luxury items like this engagement ring that
cost nearly $28,000. At first it
seems asinine. Why on earth would
Costco be selling diamonds? If you dig a little deeper, it actually
makes sense. Costco's also built its
franchise with an older American
affluent consumer. It is the baby boomer
generation that has the money in their pockets and
the incentive to save. That baby boomer
generation controls the overwhelming majority of wealth
in North America. And you know what? They're going to be around
for a while longer. Costco isn't just a
store it's an ecosystem. My mom's a
master of Costco. She even bought
curtains there. And she gets gas there. She's embedded in the
whole Costco ecosystem. The most loyal consumers
have been dedicating more and more share of
wallet towards Costco so they might have started
with household goods, and then they went
into grocery. Then they started buying
appliances, before they know they were getting
all of their furniture from Costco. And now you see a
lot of people also participating in their car
and hotel programs, for instance. If I think about why
people keep coming back to Costco, there are three things
that are part of who they are as a brand
that is very well known which is value,
quality, and consistency. At Costco,
you save money. Members love Costco for
their cheap, high-quality products like
peanut butter. For New Yorkers it's clearly
a better deal to shop at Costco. And let's not forget
about the wine. My favorite part of
the Costco experience is probably their wine section which
I know sounds a little weird. Costco, it does obviously
have some really great, beautiful, expensive
wines. But it also gives you
a lot of value-friendly wines which are
really, really nice. Costco is the largest seller
of fine wine and expensive spirits in
North America. They make their money getting
you to buy 200 garbage bags all at
the same time. They make money getting you
to buy 10 pounds of coffee rather than two. But stocking all those
garbage bags isn't free. So how is Costco making
a profit selling wholesale goods? Costco runs about
4,000 items on average per warehouse, which allows
them to be extremely efficient. Employees don't
waste time restocking shelves because of
the store's design. The other upside of
having such a curated assortment of fast-selling items
shows up in their balance sheet. They're able typically to
sell their inventory before they actually have to
pay it which keeps the needs for working
capital pretty low. They have direct relationships
with all of their suppliers and then have
a logistics setup where they — the goods are
delivered directly to their warehouse. So that keeps the
SG&A at a very minimal level. Costco plays by
the Golden Rule. You treat your suppliers
and employees well, they treat the customer well, and
you make tons of money. That's the
Costco secret. So how does this model hold
up in the age of Amazon. The surgence of Amazon
has not hurt Costco's business and there are
many consumer tests or retail tests out there
that compare if you're buying bulk at Amazon versus
buying in bulk at Costco, where do you
get the best deal? 70% to 80% of the
time you're still getting the best deal at Costco. Almost all major big box
merchants have some form of online presence. Having some form of physical
place for us to be able to do our drive by
and pick something up is going to be part of
our consuming future for at least the next 50 years. It seems Costco nailed the
formula when it opened 30 years ago, but
it isn't perfect. Costco has been traditionally
a leader in looking at how to improve
the sustainability of their supply chains. They actually have done a
great job at leading the way toward sustainable
seafood and I know we're working currently
on sustainable beef, among other things. One of the things that
they could be doing to improve their performance is
respond to one of the most pressing issues at
the moment which is how to reduce our plastic
use and plastic waste globally. So anything they could do
to to improve their packaging, improve their
their alternative offerings to help customers
eliminate the use of single use plastics
would be great. Despite the criticism, Costco
members remain loyal for one simple reason:
everyone loves a good deal. Are you a Costco shopper? Do you think it's worth it? Let us know in the comments below.
