Costco
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Costco Wholesale Corporation NASDAQ: [COST]
History
Founded by James Sinegal and Jeffrey Brotman, Costco opened its first warehouse in Seattle, Washington on September 15, 1983. Sinegal began by working for Sol Price at both Fedmart and Price Club. Brotman, an attorney from an old Seattle retailing family, was also involved in retailing from an early age.Costco’s business model was similar to that of Price Club, which was founded by Sol Price in 1976 in San Diego, California. Both companies charged a membership fee and catered primarily to small-business owners.
The two retailers were similar in size when they merged in 1993, effectively doubling the size of the combined company. Originally led by executives from both companies, Sol and his son Robert Price founded Price Enterprises and left PriceCostco in 1994. The company’s name was changed to Costco Wholesale in 1997.
Costco today
Costco employs about 118,000 full- and part-time employees, including seasonal workers, and for fiscal year 2005, ended in August, the company's store sales totaled $51.9 billion of which $1.063 billion was net profit.
As of April 2006 Costco has 473 locations: 346 in the United States and Puerto Rico; 68 in Canada; 28 in Mexico; 17 in the United Kingdom; 5 in South Korea; 5 in Japan; and 4 in Taiwan.
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 small businesses. As a warehouse club, Costco is only open to members and their guests, except for purchases of liquor, gasoline and prescription drugs in some U.S. states due to state law and liquor license restrictions. The food court where one can purchase fast food items such as hot dogs and pizza is open to both members and non-members (except in Mexico, where it is restricted to members only). Memberships must be purchased in advance; the cheapest membership costs $50 for one year (as of 5/1/2006). Purchases made at Costco's website do not require a membership; however, a 5% surcharge is added to purchases made by non-members. Purchases made with gift cards, called Costco cash also do not require a membership. To keep costs low, only American Express cards, PIN-based debit cards, cash, and checks are accepted. However, guests of members can generally only pay with cash, unless they use a member's AmEx card.
Most products are delivered to the store on shipping pallets, and the pallets are used to display products for sale on the retail floor. This contrasts with other retailers break down pallets and stock individual products on shelves. Costco caps its profit margin on most products at 14% and allows itself slightly higher margins only on its Kirkland Signature store brand (a name derived from its previous headquarters in Kirkland) with a strict 15% profit limit.[#endnote_profit]
Costco is also known for its idiosyncratic inventory practices. Unlike many retailers, stores do not maintain a full range of every product type and every major brand within each product category. Rather, stores carry only a few product categories and selected products within each category. In some product categories, the company does not rotate products often, so customers can expect certain brands of snacks or beverages to be in stock indefinitely. In many other categories, products appear and disappear over short periods of time.
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 shrinkwrap off a pallet. It now sells many other products that are more difficult to handle, such as fresh produce, meat, seafood, fresh baked goods, flowers, clothing, books, software, home electronics, jewelry, art, hot tubs, and furniture. Many stores have tire garages, pharmacies, hearing aid centers, optometrists, photo processers, and gas stations.
Some locations have liquor stores which are usually separate in order to comply with liquor license restrictions. In 2006, Costco won a court decision against the state of Washington allowing it to purchase wine directly from the producer, bypassing the state retail monopoly.
Costco also acts as an investment broker and travel agent, arranging air travel and cruise bookings. They have also introduced an automobile purchasing program where members can purchase new cars at specially arranged prices.
Criticism
Costco tore down the Casino de la Selva in Cuernavaca, Mexico, to build a store there and has faced opposition[link] from TIAA-CREF shareholders as well as its own shareholders[link]. Costco has issued a document[link] clearly leveled at the charges of mural damage and unnecessary tree removal. In it they describe the restoration and relocation of the murals from the old casino to a new cultural center they have constructed.Costco also has been accused of supporting Canadian sealing by selling seal oil capsules in its Canadian stores. Sea Shepherd called for an international boycott [link]; however, on March 31, 2006 Costco announced it was removing seal oil capsules from its shelves but retracted its decision seven days later. [link]
External links
- [Official website]
- [Costco Investor Relations website]
- [Learn More About Costco]
- [Costco Mexico official website]
- ["Merchandising masters: Costco continues to clobber competition"]
- [Costco's Dilemma: Is Treating Employees Well Unacceptable for a Public Corporation?] Wall Street Journal, March 26, 2004 Article detailing Costco's relatively generous compensation for its employees (with comparison to Wal-Mart) and pressure from Wall St.
- [How Costco Became the Anti-Wal-Mart], New York Times, July 17, 2005
- [Company for the People] Seattle Weekly, December 15 - 21, 2004, Article which contrasts Wal-Mart with employee-friendly Costco.
- [Costco price comparison]
- [Sea Shepherd calls for Costco boycott]
- [The Costco Alternative] Dollars & Sense, January/February 2006, Comparison of Costco and Wal-Mart
References
- ↑ [How Costco Became the Anti-Wal-Mart] New York Times, July 17, 2005. Accessed April 28, 2006.
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