Costco is one of the largest retail giants in the whole of the USA, providing every item possible, starting from groceries to electronics. With over 830 stores situated in the 50 states of the country, Costco’s sales are always through the roof with their annual revenue up to 190 billion US dollars. The local wholesale warehouses surmount every product and are quite accessible to the general public. Let us know about that the How Does Costco Make Money?
Costco presides over 200,000 employees, including the industry experts and the salesmen. If we include all the overhead expenses, loading shipment charges, and pallet trucks expense, Costco survives on local cash.
How Does Costco Make Money?
While Costco has established its brand name all over the globe, it offers low price membership offers for regular customers and trades its authentic products on a bulk-level basis. Costco is a rival competitor for the biggest retail chains like Walmart, Target, Kroger, and Amazon.com. Even while competing with the best in business, Costco is the 14th largest company by revenue in the year 2020.
This wholesale store sells everything in bulk, from cleaning supplies to pet food, it sells every minute home item. Costco always manages to give its customers proper value for their money with affordable prices on every item. But how? Even with only 800 stores and an online presence, how does Costco make money and beat its competitors?
Costco’s online sales aren’t the main bank of its profits as it is comparably new to the other retail giants like Amazon. Its new revenue layout helps put in more business income while satisfying its customers alike. Principally, there are three major ways mentioned below through which Costco acquires profits.
Physical Store Revenue
Mainly, it is headquartered in Washington state in the United States but has numerous branches in Europe and Asia. Costco is an international big-box retailer, investing itself in various countries while generating profits both locally and abroad. Costco follows a policy of putting out low investments and fostering higher profits through regular sales and membership fees.
The majority of Costco’s sales are through merchandise and in-store collection. Various in-bulk shipment orders align with the physical store revenue. Costco has seen an increase in its warehouse-style sales from 110 billion US dollars in 2014 to 192 billion US dollars in 2021.
It keeps on increasing with the opening of more physical stores around the states and other countries. With the proximity of the location of stores, and the number of products available, Costco stores have made a name for themselves in warehouse-style retail. Costco offers Food and Sundries, Fresh foods, Furniture, Electronics, Jewellery, and Appliances. It’s a store-shop, a combined Target and Home Depot in one warehouse.
Membership Fee
To benefit from their discount deals on wholesale products, customers might have to sign up for a membership offer. They offer two membership deals, the Gold Star Membership costs up to 60 dollars per year while the Gold Star Exclusive Membership deal costs up to 120 dollars a year.
With this initiative, Costco has gained loads of customers with more than 100 million active members. The revenue production due to membership fees costs only about 2% of its total net sales. Even this small amount has led to making Costco a more reputable and authorized store.
The members shopping frequently to coup their membership deals help in increasing the demand for the wholesale items, which retrospectively provides an in-store profit. While e-commerce is set up to highlight this decade’s prominent shopping style, Costco.com will surely not go out of business anytime soon.
E-commerce Sales
Costco started its online shipment orders in 1998, but it gained popularity in 2014. As some of the products are not readily available on the e-commerce website, the sales are relatively low as compared to the in-store collection. It fetched around 98 billion US dollars, i.e. 6% of its net sales through online mode.
With the high rise fashion in online shopping among customers, Costco has lined up all its products on the shelf. The focus on online international sales in Taiwan, Mexico, and South Korea brought in a large amount of profit for Costco. While the pandemic hit, Costco’s online sales grew by 90% in 2020.
Costco’s Business Model
Costco’s business layout mainly focuses on its membership-only scheme. To compete with its rivals, Costco offers low prices to its authorized members to buy from the bulk wholesale inventory. It makes the highly discounted products freely accessible to its yearly members. This incredibly innovative business plan helps in gaining more loyalty among customers as their membership plans only adhere to a single year.
Consumer Experience
With a wide variety of wholesale items to choose from, customers feel like taking a Costco trip every month to restock their food needs and replace their electronics and office supplies. The membership deals provide a sense of trust and authenticity among regular customers. As it offers low price products with exclusive discounts and privileges to the accounted members, Costco gives a user-friendly experience to the consumers.
Operational Cost
As Costco buys its products in bulk, it immediately reduces the price of an item for an individual. Purchasing from bulk merchants helps in reducing the in-store operational cost when compared with its competitors like Target or Walmart. The hypnosis of high levels of inventory design and large warehouses residing the bulk items and in order to save money, customers end up buying more products. This creates a win-win situation for both businesses and consumers.
Conclusion
Costco follows its highly profitable revenue model with cost-effective partnerships, membership deals, lucrative mergers, and a high market cap. This business thrives on selling high-quality, low-priced, in-bulk items to its customers. By acquiring its target audience as the upper-middle-class people living in the suburbs, Costco has a cost-effective strategy to maintain its profits while giving out the lowest prices for any in-bulk merchandise.
Frequently Asked Questions
- Where can I use my Costco membership card?
In any of the 800 locations mentioned in the US, you can avail of Costco offers in every state.
2. What are the membership card deals offered?
The Gold Star Membership card for $60 a year and the Gold Star Exclusive Membership card for $120 a year.
3. Do I have to carry my membership card every time I visit Costco?
Yes, you have to carry the card so that Costco can verify your details.
