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Costco: An exceptional business with passionate members

Costco: An exceptional business with passionate members

June 03, 2021

Costco Wholesale is the third largest global retailer with over $175 billion of sales over the last twelve months and 275 thousand employees. About 70% of Costco's 803 warehouses are located in the United States. Costco's second largest market is Canada which contains 102 locations. Shopping at Costco requires a membership which costs $60 annually. There are nearly 60 million total paid members.

Customers love Costco because it sells high quality products at low prices. Costco's management has a philosophy of keeping costs down and passing the savings onto the shoppers. A few examples of cost saving efficiencies include shorter operating hours than most other retailers, the simplistic warehouse-style shops with merchandise displayed on pallets, and strictly monitored members-only entrances which reduces the amount of stolen goods. As seen in the slide below, Costco basically pools together money from all its members to increase buying power and is able to get the best deals from vendors. So, as members increase, buying power for Costco increases, and customers get lower prices.

In addition, Costco has a culture of treating its employees well. For example, at Costco's 2021 Annual Meeting, W. Craig Jelinek Costco Wholesale Corporation – President, CEO & Director stated, "If you look at our employees, 275,000 employees worldwide, premium benefits paid, industry-leading compensation, someone after 10 years is making almost $29 an hour. Benefits for full-time and part-time employees, including leave, childcare for COVID. 91% of our employees are eligible in the U.S., 97% are enrolled. And we have a stable workforce. 36% of our employees have 10 years plus, and our turnover is less than 7% after 1 year. We're very proud of that."

These competitive advantages make Costco a GPM Grade Company, which we define as a high-quality, US-based business with sustainable growth. Costco has a track record of delivering rewarding long-term growth in sales, earnings, cash flow, dividends, and ultimately stock prices. We believe the 20% pullback of its share price at the beginning of 2021 presented a long-term buying opportunity of an exceptional business. 

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