Costco pays its employees higher hourly wages than Walmart, for example. This is likely to be at least partly attributable the company’s very positive employee experience. Its customer experience and customer loyalty are very strong. There is something special about Costco’s culture. Loyal customers & excellent corporate culture. This is illustrated, for example, by Costco’s continuously improving return on invested capital (ROIC), which is at a high level (15–17% in 2021). In addition, Costco’s investments in growth have been controlled and profitable. The management has been able to find the right balance between a low-cost retail chain culture and product quality. The company’s five-year average sales growth, approximately 7.5% per year (2015–2020), is significantly better than its competitors. The company operates in the retail sector, which is naturally quite defensive and saturated, but Costco has managed to grow at a steady rate. In addition, the company’s internal efficiency makes it possible to make ever-increasing amounts of money, which appeals to shareholders. It is clearly different from its competitors but, above all, Costco’s value proposition to its customers seems to be effective. First of all, we are impressed by the company’s strategy and earnings model. Following the successful opening, Costco has announced it will open a second retail warehouse in Shanghai and a third in Suzhou. By comparison, the average number of members in the United States is around 68,000 per warehouse.Įven Costco’s own management was surprised by the company’s early success in Shanghai. We recognize that internationalization is always a risk, but Costco has demonstrated a mature and calm approach with its growth targets.ĭuring the first quarter, the Shanghai warehouse brought in over 200,000 new members. One of Sifter’s investment hypotheses is to keep an eye on Costco’s expansion in foreign markets such as China, where Costco opened its first retail warehouse in Shanghai in 2019. We believe that the demand growth seen during the spring is not temporary and that Costco’s position as the first choice of its members will improve further. Membership growth enables the company to sell its products at even lower prices as it achieves economies of scale in purchasing and distribution.Ĭostco’s digital channel also grew exponentially during the pandemic as customers changed their buying behavior, although the company’s earnings model is largely based on the customer experience in brick-and-mortar retail. The year of COVID-19 further boosted Costco’s businessĭuring the spring of COVID-19, customer demand for Costco’s affordable products increased significantly and the number of new members grew. This makes the wheel spin even faster, allowing Costco to strengthen its competitive advantage as the scale of its operations grows. In spring 2021, Costco had almost 60 million paying members (over 108 million household members), which must be some kind of world record for fan clubs.Īs new members sign up, the prices can be lowered even further. pay the next year’s membership fee of USD 60–120. Costco’s members are more than 90% likely to renew their membership, i.e.

The combination of very low prices and surprisingly good quality continuously attracts new members to Costco and the existing members are also very loyal. However, for Costco, the gross margin is not an essential indicator, as more than 90% of its profit is derived from membership fees.Īt Costco, the prices of products are deliberately lower than those of its competitors (lower margins). At a glance, Costco may seem less attractive than Walmart on the basis of its key figures, but the figures are the result of Costco’s chosen earnings model.įor example, Costco’s gross margin is much lower than Walmart’s.

Costco corona business membership