Costco Wholesale Corporation is an American membership-only warehouse club that provides a wide selection of merchandise. As of 2014, it was the third largest retailer in the United States, in 2015 it is the second largest in the world and the largest membership warehouse club chain in the United States.
The current Costco is headquartered in Issaquah, Washington, United States and was founded as Price Club on July 12, 1976 in San Diego, California with its first warehouse under the Costco name in Seattle, Washington seven years later.
As of 15 April 2014, Costco has a total of 672 warehouses, spread throughout the United States (474), Canada (89), United Kingdom (26), Australia (7), Mexico (34), Taiwan (10), South Korea (11), Japan (20), and Spain (1).
History
Price Club and the birth of the retail warehouse concept
The entire history of Costco began with Sol Price and his son, Robert, opening the first Price Club warehouse on July 12, 1976 on Morena Boulevard in San Diego, California, thus giving birth to a totally new concept: a retail warehouse club. The Price family placed Price Club Warehouse #1 inside a series of old airplane hangars previously owned by Howard Hughes; that warehouse, now known as Costco Warehouse #401, is still in operation today.
Costco comes forth
Costco opened its first warehouse in Seattle, Washington, on September 15, 1983, by James (Jim) Sinegal and Jeffrey H. Brotman. Sinegal had started in wholesale distribution by working for Price at both FedMart and Price Club and Brotman, an attorney from an old Seattle retailing family, had also been involved in retail distribution from an early age.
The "PriceCostco" merger
In 1993, Costco and Price Club agreed to merge operations themselves after Price declined an offer from Sam Walton and his Walmart company to merge Price Club with Sam's Club. Costco's business model and size were similar to those of Price Club, which made the merger make more sense for both firms. The combined company took the name PriceCostco, and memberships became universal, meaning that a Price Club member could use their membership to shop at Costco and vice versa. PriceCostco boasted 206 locations generating $16 billion in annual sales. PriceCostco was initially led by executives from both companies, but then the Price brothers soon left the company in 1994 to form Price Enterprises, a company unrelated to the current Costco.
In 1997, the company changed its name to Costco Wholesale Corporation and all remaining Price Club locations were rebranded as Costco.
Other company milestones
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.
CNBC premiered its documentary "The Costco Craze: Inside the Warehouse Giant" on April 26, 2012.
In October 2014, Costco announced plans to open an online store in China using Alibaba Group.
Costco today
In the United States, the main competitors operating membership warehouses are Sam's Club and BJ's Wholesale Club. Costco employs about 174,000 full and part-time employees. As of February 2013, Costco had 71.2 million members.
Costco was the first company to grow from zero to $3 billion in sales in under 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 19th on the 2014 Fortune 500. The ACSI (The American Customer Satisfaction Index) named Costco number one in the specialty retail store industry with a score of 84 in 2014.
As of December 2013, Costco's board of directors is chaired by co-founder Jeffrey H. Brotman and includes two officers of the company: President/CEO W. Craig Jelinek and CFO Richard A. Galanti. There are also twelve independent directors:
- Hamilton E. James (the "Lead Independent Director")
- Susan Decker
- Daniel J. Evans
- William H. Gates, Sr.
- Hamilton E. James
- Richard M. Libenson
- John W. Meisenbach
- Charles T. Munger
- Jeff Raikes
- Jill Ruckelshaus
- James D. Sinegal - Co-founder and former CEO
In the United States, Costco is closed on seven holidays:
- New Year's Day
- Easter
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving
- Christmas
In Canada, Costco is closed on nine holidays:
- New Year's Day
- Easter
- Victoria Day
- Canada Day
- Civic Holiday
- Labour Day
- Thanksgiving
- Christmas
- Boxing Day
Sales model
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, generally by the Kirkland Signature label. This results in a high volume of sales from a 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 an average sunny day, it is very normal for the center section of the warehouse not to have interior lights in use.
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 14%.
Membership
Costco is only open to members and their guests, except for purchases of liquor and gasoline in some U.S. states because of state law, prescription drugs because of federal law, and (in some regions) purchases made with Costco Cash Cards. While Costco welcomes guests to accompany members, only members are authorized to pay for items (unless the guests have Costco Cash cards). Memberships must be purchased in advance for one year.
In Australia, membership is A$55 a year for a business membership, or A$60 a year for a Gold Star membership.
In Canada, membership is C$55 a year for a Gold Star membership and includes a card for a spouse, or CDN $110 a year for an Executive membership.
In Mexico, membership is Mex$450 a year for a Gold Star membership, or Mex$1000 a year for an Executive membership. Costco is only open to members for all services and purchases. Mexican locations only accept cash and Visa/MasterCard debit cards; purchases with AMEX, MasterCard, and Visa credit cards incur a surcharge of 2%, purchase with a check incur a surcharge of 1.85%. Purchases with the Mexican Costco credit card are charged cash prices.
In Spain, membership is EUR30 plus VAT a year for a Gold Star membership, which includes an additional card for no charge, or EUR25 plus VAT a year for a Business membership, which also includes an additional card for free.
In the United Kingdom, membership is restricted to certain groups only. Trade membership is available to the owners or managers of businesses for £20 (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 accountants, architects, dentists, doctors, engineers, opticians, pharmacists, surveyors, magistrates and solicitors, as well as employees in certain specific sectors (such as airlines, banking, the civil service, education, local government and medical services) may apply for individual membership, which costs £25 including a spouse/partner card. While these restrictions are posted in the store they are not applied rigorously; in reality any individual may apply for, and receive, a membership 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.
As of May 2015, membership fees in the U.S. 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. All memberships include an additional card, free of charge, for a household member, and an option to buy more cards for other members associated with the primary accountholder. Along with the additional benefits the Executive membership offers, e.g., vehicle insurance, check printing services, and home loans. Executive members also receive an annual "2% Rewards Check" of up to $750 from Costco on all purchases made, excluding select items such as gasoline, stamps, tobacco, and in some states, alcohol.
Forms of payment
American Express is the only accepted credit card in Japan, the United Kingdom, and the United States because Amex charges Costco very low interchange fees (a percentage of revenue from total sales made); as Costco's margins are low in comparison to other retailers. Other forms of payment accepted at Canadian, United Kingdom, and United States Costco locations include cash, Costco Cash Cards, Costco credit cards, checks, EBT cards (food stamps), and PIN-based debit cards (Interac in Canada). Costco also accepts Flexible spending account (FSA) debit cards for qualifying purchases at the optical and pharmacy departments in the U.S.
Online, Costco.com accepts the American Express, Discover, MasterCard, and Visa cards. The website also accepts PayPal Credit accounts for payment.
As of January 1, 2015 MasterCard is the only accepted credit card at Costco warehouses in Canada.
As of February 12, 2015, the 16 year partnership between American Express and Costco will dissolve March 31, 2016, meaning that Costco will no longer accept American Express credit cards and members that enrolled in TrueEarnings Costco-American Express cards will no longer be able to use it anywhere else within the United States after March 31, 2016. There may be some leeway to this date, where the cards may be accepted beyond March 31, 2016, but it depends on what happens between the two companies in the following months. American Express mentioned that it and Costco failed to reach an agreement that would have continued their partnership beyond March 31, 2016, the end date of their contract. The department between American Express and Costco will have a large impact on consumers because Costco is one of the few large-scale retailers that only accepts American Express and not Visa, MasterCard, or Discover. However, Costco accepts debit cards from Visa and MasterCard. The TrueEarnings Costco-American Express card does not have an annual fee and offers cash back on certain tiers of purchases. American Express however, offers a deal to new cardholders, such as zero percent interest for six months, followed by a variable rate at 15.24%. The result of the termination of contracts between the two companies will open doors to other financial service companies. On March 2, 2015, Costco announced that Citigroup Inc. will become the exclusive issuer of Costco's credit cards and that Visa Inc. will replace American Express as the credit-card network for Costco's stores starting in 2016.
Policies
Cash Cards
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 Australia and the United States. Because Costco gas stations take only American Express, MasterCard (Canadian locations only), Costco Cash, Costco credit cards, and debit 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.
Food stamps in the U.S.
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 2009 to accept electronic food stamp benefits chainwide, Costco announced in May that year that it would 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 the "central valley of California", Indiana, and Michigan, expanding to "half its roughly 410 U.S. stores by Thanksgiving", and then going nationwide.
Return policy
Costco memberships can be refunded in full at any time before they expire. Costco guarantees almost all of their products with a full refund. 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 30 months and are covered under a pro-rated warranty for months 31-85). Costco has negotiated with manufacturers to extend the manufacturer's 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.
Costco's official return policy is written as follows:
"We guarantee your satisfaction on every product we sell with a full refund. The following must be returned within 90 days of purchase for a refund: televisions, projectors, computers, cameras, camcorders, touch screen tablets, MP3 players and cellular phones."
Products
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 fifth-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
"Kirkland Signature" is Costco's private label. It is found at Costco's website, Costco warehouses, and on Amazon.com and is trademarked by the company. The name is derived from the location of Costco's corporate headquarters, in Kirkland, Washington, from 1987 to 1996.
Costco introduced Kirkland Signature as its private label 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 occasionally employs 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 has a wide variety of changing inventory and is known for carrying products for a time, then discontinuing them or using them as seasonal products.
Services
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.
Online shopping
On April 17, 2001, Costco Wholesale opened a B2B (Business to Business) online shopping site at www.costco.com for faster and easier business shopping.
In December 2005, Costco signed an agreement with PhotoChannel Networks Inc., whereby Costco could deploy the PNI Digital Media Platform to offer online photo printing for Costco members through the website.
The domain costco.com attracted at least 58 million visitors in 2008 according to a Compete.com survey. Costco.ca is for Canadian members while costco.com is for United States members. Other countries such as Mexico and the UK have their own online Costco shopping website.
Costco Travel
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, 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.
Costco Connection
The Costco Connection is a magazine sent free to members of 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.
Food service
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 US$1.50, the same price since 1985. In Australia the hot dog is made of pork and is sold at A$1.99 with large soda. In Canada the price for a hot dog and 20 oz pop drink with refills is C$1.50. In Mexico, the hot dog is made of pork, and includes a drink (with refills) for Mex$25. In the UK, the hot dog is also made from beef, and customers can 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, making Costco arguably the 14th largest pizza chain in the US in 2010. 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, beef bake, bulgogi 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 replaced all Coca-Cola fountain drinks at US food service locations in April 2013, the hot dog-soda combo will continue to cost US$1.50.
Costco business members
On March 9, 2005, NOVA Information Systems (NOVA) partnered with Costco to market and support payment processing services to Costco Canada's Business Executive Members.
Animal welfare concerns
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.
Labor relations
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. 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, 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.
In 2014, The Guardian reported, that Costco is a client of Charoen Pokphand Foods. During six months The Guardian traced down a supply chain from slave ships in Asian waters to leading producers and retailers. Costco published a statement saying it has had a supplier code of conduct since 1999 which does not allow this practice, and independent auditors check this regularly.
International
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.
Locations
As of August 29, 2014, Costco has 672 warehouses:
- 474 in 43 United States states and Puerto Rico
- 89 in 9 provinces in Canada
- 34 in 18 states in Mexico
- 26 in 3 nations in the United Kingdom. The latest to open is in Hayes (August 1, 2014).
- 20 in Japan
- 11 in South Korea
- 10 in Taiwan
- 7 in Australia
- 1 in Spain
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 Business Center
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 nine Costco Business Centers, located in California (Commerce, Hawthorne, Hayward, and San Diego), Washington (Lynnwood, Fife), Morrow, Georgia, Las Vegas, Nevada, and Phoenix, Arizona.
International expansion
As of April 19, 2015, Costco Spain has a message on their Costco.es website which states (in Spanish) that "Costco will arrive in Madrid very soon", which might indicate expansion plans for the company.
Discontinued Concepts
Costco Home
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.
See also
- BJ's Wholesale Club
- Bulk foods
- Sam's Club
- Walmart
References
External links
- Costco Wholesale official website
- Costco Mobile
- Costco SEC Filings
- PriceCostco Company History FundingUniverse
- Costco Travel official website
- Costco Auto Buying Program website
Interesting Informations
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