welcome to costco i love you welcome to costco i love you it's not news to anyone
costco has low prices good quality items and a cult following but how
well here are 10 reasons why costco is so successful successful powerful handsome
costco's history no honey you're in history i'm history back in 1954 an attorney named saul price
inherited an empty airport hangar in the city of san diego immediately he knew what he was going to
do with it he saved up 50k and then stocked up on wholesale jewelry furniture and liquor with those
items in stock he launched fedmart a warehouse style store where people could pay a two dollar
membership fee to access the assortment of deals he'd procured by the time he sold fedmart in 1975
he'd grown it into an astounding 350 million per year 40 location chains and we're in a
volume business here like costco so after he sold fedmart saul launched price club a one-stop shop
that offered basically anything you could think of the thing that made it stand out
from its competitors is that it didn't advertise the stores were ugly and bare bones and refused
to mark up items as much as other stores did sol had a protege named jim senegal who worked
at fedmart and then at price club he knew all of saul's successful strategies and he knew
exactly how to create the perfect store and in september of 1983 senegal and his friend
jeff brotman launched the first costco in seattle and the rest is history it's been good
it's been great it doesn't boost markups sometimes less is more costco's huge buying power allows
it to get great discount deals with vendors and instead of boosting their markup to try and get
more money from its customers it passes down those savings to its shoppers costco has stated that it
caps its markups at 14 for brand name items and 15 for its in-house kirkland brands this even
includes wine which is notoriously given 200 to 300 markups at other stores you try to fool us
but even though it caps its markups at 14 most items in the store are only marked up at 11
if you compare this to the 25 to 50 percent of other stores you can start to see why people
love costco so much costco doesn't want its customers paying more money and it doesn't
rely on making huge profits off its sales remember you're still paying to get access to these deals
offering these great deals to its customers is why costco has such a loyal customer base you'll stay
with me till the end till the very end two words membership fees got tons of it at costco you see
i've got an exclusive membership card less than half a century ago people would have considered
it nuts to charge customers money simply to walk through the door to buy something but costco's
been doing it since the 80s and people have been happily obliging since the old fedmart days
costco's members pay either 60 or up to 120 a year to get a membership with the price depending on
your membership status why because they believe having access to the stores good prices and bulk
items justifies the upfront cost of a membership did you know that costco makes just over three
billion dollars in annual revenue from its memberships alone i have way too much money
there are approximately 51.4 million people with costco memberships and they can't seem to get
enough of it the renewal rate is an impressive 90 percent and out of those people it looks like
there are more than a few with a costco obsession how do we know well there are countless costco
blogs costco forums and even costco facebook groups people talk about how much they love the
store share deals with each other and sometimes even create memes related to the store costco
just might be the rock star of the retail world i'm a rock star oh my god costco fans all right
guys this fanboy stuff is a little much there are plenty of instagram accounts and websites
dedicated to costco costco has even become a travel destination for some people with one fan
sharing that she'd been to nearly 70 costco stores across the world and it might even be a place for
romance at least one couple has tied the knot in a costco but why do people love costco so
much retail experts have examined this phenomenon and they have come to a few different conclusions
the first one is that some of this costco devotion comes from physically holding a costco card
look what i got you my very own costco membership card the exclusivity of the costco card makes you
a part of a community which will only deepen your brand loyalty on top of that there's a sunken cost
fallacy since people have already spent 60 on a card they feel that they have to indulge in as
many deals as possible to make up for it another part of the costco craze is that everyone loves
a good deal anyone who's gotten something on sale knows the rush of victory at the counter and often
we can't get enough of that well whether you're there for the deals or because you're a loyal
soldier costco can be sure that its customers will keep walking back through the doors i'll be back
less choice more bulk and i'll be fine at costco when we're shopping for bulk paper towels
while many people believe that variety is good for business costco does the opposite
other stores like to offer a wide variety of products you might walk into the chip aisle
and have over a hundred different brands to choose from but at costco there will only be a couple of
brands why because costco knows its customers freakishly well and can curate its selection
towards what they are most likely to want because of this costco solves the paradox of choice
in which customers have too many options this causes stress in customers which can lead to
delayed decision making or can even deter them from buying something in the first place well
it just it doesn't feel like playing anymore it feels like work it's like i'm working in the field
but it's not just that it's also cheaper to stock fewer items to save even more
costco's supply chain is rigged to minimize steps items are removed from trucks and driven
straight to the aisles on forklifts where they sit on giant pallets waiting to be plucked by
shoppers but while costco stocks less it sells things in bigger quantities everyone knows that
at costco things come in bulk you can't just buy one pack of gum they come in packs of 12.
this is because for most customers it makes more sense to spend 400 once per month than 100 on four
different trips it saves time for the customers and it saves costco money it's a win-win situation
yeah feels it it makes products cheaper damn it costco you've done it again so we know that costco
limits the brands that it stocks and is very picky about the vendors it chooses to work with
when costco finds a product it likes it spends months and months working with the vendor
and its factory to both amp up the item's quality and reduce the cost for example in 2012 there was
a toy that retailed for a hundred dollars costco had the option to buy it at fifty dollars and sell
it for sixty dollars but decided to try harder to cut costs over the course of several months
costco ended up working with both the vendor and the factory where the toy was manufactured
the end result they were able to reduce the price by 50 and ended up selling the toy for only 30
what how good management it's in stories like this where you can see that costco actually cares about
its customers ultimately the company would have made the same amount of money if they had sold
the toy at sixty dollars but because costco is dedicated to lowering prices with shoppers it went
out of its way to try and reduce the cost there have been other instances of costco re-engineering
things to make them cheaper such as changing a certain cashew container from a circle to a square
so that more could fit into the shipping boxes at the end of the day it means that customers
get to save more and more wow that sounds like a really good deal it treats its employees well
good job everybody oh my unfortunately retail workers are among america's lowest paid employees
in the past years we've seen just how important they are at keeping daily life running smoothly
and yet big companies still refuse to pay them a living wage or to give them any benefits
costco on the other hand understands that treating employees well is good for business the average
wage for a costco worker works out to be about 21 an hour which is nearly twice as much as the
hourly wage at walmart we're gonna be rich rich what's even better is that 88 of their workers
receive company-sponsored health insurance because of this costco employees continue to work for
the company for years meaning that they have an extremely low turnover rate which means they don't
need to train new employees all the time other big companies should definitely take this page
from costco's book how how did you do it it cares about its customers more than its shareholders
you should get that cough checked out costco has doctors now ceos of big public companies
are often trying their hardest to maximize shareholder value to do this they hike up
prices lay people off and cut corners by giving customers worse quality products in the last 30
years the percentage of corporate profits going to stockholders has increased from 50 to a shocking
86 this has resulted in fewer deals for customers and less money for employees but once again costco
goes against the grain since it opened in 1985 investors have complained the company has been too
generous with its customers and employees we're doing things my way from now on let's move
shareholders have been calling for higher markups on goods stricter prices and reduced benefits for
workers but costco has repeatedly refused to meet these demands both because it cares about
its employees and customers and because it's actually proved good for business by sticking
to their principles their stock has gone up 387 since the year 2000. senegal told the new york
times that wall street is distracted with making money immediately and will do anything to get it
but costco doesn't see it that way the people behind costco want to build a company that
will still be around in 50 years and that's certainly something most people can get behind
simple built to last costco is a maze try not to get lost come on in another reason that costco
is so successful is the way the stores are organized costco has arranged its stores to
be more than a simple grocery stop every item has been strategically placed to draw people in
keep them in the store longer and ultimately make more sales it starts with the basic store layout
necessities are placed at the back of the store which means shoppers have to pass everything else
in order to get them that means that every time you go to get milk you have to resist the impulse
urge to buy something more fun for yourself like a computer game or a giant bucket of cheese balls
just buy it you don't have to rationalize everything then of course there are costco's
famous samples on your treacherous path to the grocery section you get to try unlimited samples
from food to massages according to experts free food has the effect of making people much less
disciplined shoppers which leads to even more sales for the company lastly there's the treasure
hunt aspect of going to costco shoppers can always expect to find the unexpected at costco's stores
and that's part of why they come back costco has an ever rotating lineup of surprise deals such as
designer items which keeps customers hunting for good deals oh no the hunter has become the hunter
it doesn't advertise maybe it's worth the penny yeah you're paying for advertising walmart spends
about 2.4 billion dollars on getting the word out about its store all things considered that's only
around point five percent of its total revenue which is why walmart is considered to be stingy on
advertising while still being one of the largest advertisers in the world now let's take a look at
another store target it spends a little over two percent of its revenue on marketing costco on the
other hand spends essentially zero on marketing it has no advertising budget though it does send
mailers to both prospective and existing members how can such a large company get away with barely
any advertising well there are two reasons firstly costco as a product sells itself that
is pretty smart the membership obviously has great value to those who shop there and other retailers
simply cannot match them on price secondly driving existing members to the store more
often through marketing wouldn't really help the company make more money since membership fees are
the real driver of profits and spending heavily to gain more members doesn't make much sense either
ultimately if costco was like walmart and spent point five percent of its revenue on marketing
it would take out 17 of its operating profit if it were to spend even more let's say 2 percent like
target then that spending would erase nearly 70 of costco's profit the numbers just aren't in favor
of advertising and it goes to show that you can still be successful without it either way you win
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