Costco today: two interesting observations...

[Zeke]

Originally Posted by alf

Costco makes their money from memberships, their warehouse sales are pretty much a break even concern. As long as people keep paying their memberships, it will be fine. At least in the short term...

I don't think that's entirely accurate. Costco makes money by buying right. All electronics are spec built for them and purchased in contract lots. Lots of stuff is bought out at an end of a run at discount; that's why you see it today and never again. Sol Price, the founder of Price Club (which was bought out by Costco) used to say that the store operated on a 11% markup, but he bought most things 10 or so % behind wholesale. You do the math.

He also started Fedmart.

[Rick Lee]

I haven't been to Costco since I got to AZ, as the closest one is about 10 miles away now, whereas there was one two miles from me before. I make it a point to only ever buy things there I use regularly and to be sure it's a good deal. I know how much I normally spend on booze or food in a week and Costco has to beat that for me to buy stuff there other than Mobil 1.

[dd74]

Originally Posted by milt

I don't think that's entirely accurate. Costco makes money by buying right. All electronics are spec built for them and purchased in contract lots. Lots of stuff is bought out at an end of a run at discount; that's why you see it today and never again. Sol Price, the founder of Price Club (which was bought out by Costco) used to say that the store operated on a 11% markup, but he bought most things 10 or so % behind wholesale. You do the math.

He also started Fedmart.

Yep, this is true. The stuff is a year old. Even Costco's books and CDs have already been out for a while before they put them on the floor. Also, Costco has a very limited line of products, which keeps their price down. No one's going to find the same amount of choice at Costco as they do at a local grocery store. Factor the Kirkland brand in with that, which I think Costco owns, and they're making money hand over fist.

[dd74]

It was the cheaply-priced Mercedes displayed out front that got me. Try finding one for less than $40K in L.A. -- it's impossible. That car was $8,000 below what the dealer asks.

[jyl]

I just looked at COST's 2007 10K.

Merchandise sales $63.1BN, membership fees $1.31BN. Operating income $1.61BN. So fees are most of their operating income. They could run the rest of the business at breakeven (zero operating margin) and still have most of their operating income. Pretty nice model.

We shop at COST, well my wife does anyway. The meat quality is good, sometimes very good. Certainly better than the run-of-the-mill grocery store. And much less expensive. The gasoline is meaningfully cheaper too. The rest of the stuff contains some serious bargains as well. Admittedly we probably "lose" a quarter of the savings, by buying more than we really need to buy there. But it still makes sense, as a consumer.

All in all, I'm glad COST exists. Now, if I didn't also shop at Whole Foods, I'd actually be saving money . . .

[Hawktel]

My Father bought his current Toyota Corolla at Costco (Work vehicle, he drives it a lot) He paid 3500 less than sticker, sat down picked out all the options, had it 2 weeks later.

When i was married, we had a membership. The money we saved on Gas paid for the membership.

As a single guy I let it lapse. I just don't need 12 cans of Ravoli.

[Jims5543]

I am seeing the same thing at BJ's, empty. Home Depot, no matter what time of day or what day of the week I go (I was remodeling my bathroom) empty.

Lowes same deal, empty.

Nothing to see here the economy is fine, people are just changing their spending habits.

[Tidybuoy]

Originally Posted by Christien

I hate Costco with a passion - the concept of paying some company to shop at their store rubs me the wrong way.

I own Costco stock and I can confirm that Costco operates on an 8% gross margin - which is rediculously low for any retail operation. The average gross margin % for retailers overall is about 38%. This means that Costco is barely marking up thier product and is only marking up enough to cover bare-bones expenses. The bulk of their profit is thru membership fees.

Originally Posted by pitargue

What I object to is that Costco considers their "members", thiefs first, and customers second. You know the shake down that happens when trying to leave.

Coupled w/ the zoo like atmosphere and products that end up on the floor, I have no idea why people shop there. I guess they are "saving" money...

I love the Costco business plan. I worked for a large retailer for 21 years in Finance. I always thought it was amazing that my company and Costco sold similar products - but we worked 10 times harder to make less profit. My company's philosophy was that the customers could not be trained to do it any differently - I totally dissagree;

We buy the product, mark it way up, advertize it, mark it down, mark it back up, have expensive stores, carpeting, dressing rooms, etc....when it's all over - we barely brake even.

Costco has the customer totally trained - every single customer is pulling out their card in the parking lot - cause you know you won't get in with out it. Costco's philosophy; there's the stuff, that's where you pay for it - the end. Don't see your color - we don't have it - the end. We won't call every store in the chain looking for it and have it shipped to you - the end. 95% of Costco customers are completely happy - they know the rules, they know it's a limited selection, they also know their getting a good deal for what their buying. The proof is in the sales; the average store's sales is $150 million per year (that's big)!

It's not for everyone, but the regular Costco customers are generally happy - it's a great company to shop at, and as a stockholder - it's not too bad either.

[Sapporo Guy]

Costco finally came to town.

I go because I can get things that I can't get anywhere else in town ... 2 million large

I noticed that most quality is par or better. Veggies ... I figure is a local problem.

One thing that did catch my eye is that prices are "rigged". Some products are shown to have:
price per gram
while others are
price per unit.

Now, why would they do that?

Markup does seem to be fair and never really complained. Just shopped smarter.

lolo, yeah that shake down at the exit is pretty hilarious. My GF asked and the lady said, "check for everything is there or not" and like normal, I just blurted out really loud and said, "shoplifting check"

However, I wonder if it isn't more of shopping ploy. As in, when you're on the way out waiting for the check you end up checking out everybody else's purchases!

[MOMO3.2]

I agree, the Fillet Mignon and ground beef from Costco are as good or better than any I have found anywhere.

The Market that I really feel lucky to have around the corner from me is Fresh and Easy. The prices are very low on the items we buy. They stock foods very similar to a Trader Joe's. I always get $5 off every $20 I spend with an in store coupon. And, I really like the fact that I can get in and out of there quick with the self checkout.

I know there has been some negative campaigning against Fresh and Easy based on the fact that they are a non union company that does not use traditional checkers. But, I lost that lovin feelin for the grocery union members after the last strike.

Mike

[mthomas58]

Originally Posted by lendaddy

I'm just keano for Beafarino

Oh Rusty!

[jyl]

Forgot to mention, the other thing I like about COST is that they pay employees decently, including medical benefits for most. The company has taken a lot of criticism for this, because it reduces the profit margins in the short term.

[vash]

the CEO of costco will only allow himself to be paid a certain percentage above the lowest paid employee.

i think the meat at costco is alright. the price is great. but i like talking to a butcher. i love going home with the paper wrapped meat. the veggie packs are huge. i dont save money, because i waste alot. you come home with a pillowcase full of spinach; expect the last bit to rot.

i buy my veggies from ethnic markets, my meat from a butcher..sometimes costco..costco is my goto place for toilet paper...

[Hugh R]

I can buy four one gallon jugs of good orange juice there for about the price of 1-1/2 gallons of house brand at Vons. I have a fridge in the garage and go through it all in about a month.

TP and paper towels same thing.

Coffee, less than 1/3 the price for the same local specialty.

Having a vacuum packer is a good thing for meats.

[rusnak]

We stopped selling to Costco because they would not let us make a profit, plus they want exclusives and re-branding rights under their Kirkland brand.

But, I like buying there, especially raw beef and crab. Maybe I'll buy from BJ's on my birthday, lol.

[herr_oberst]

I once saw a guy in the checkout line with a single carton of generic cigarettes on one of those enormous green flatbed carts. I still chuckle when I think about it.

[pwd72s]

Bottom line...consumer spending is down because of the $$$ going into the gas tank. I shudder whenever I think of the heating oil bills soon to come.

[Super_Dave_D]

Originally Posted by alf

Costco makes their money from memberships, their warehouse sales are pretty much a break even concern. As long as people keep paying their memberships, it will be fine. At least in the short term...

Not true - no way memberships alone could sustain them. No Way. They have a healthy margin in their products.

[Pazuzu]

Originally Posted by Superman

Something special about the term "wholesale?"

Costco is arguably unique in that it's a warehouse store that caters to rich people. Costco stuff is higher quality.

Wait until you get the chance to visit a Costco Furniture Store...

Imaging a room the size of Costco, FILLED with furniture...set up in rooms and decors, all styles, all prices...

Sofas from $200 to $2000, room sets to $10K, whatever you can imagine. Personal movie theaters with heated/ACed reclining cupholder seats in a stadium configuration...EVERYTHING.


THAT proves that Costco is for the rich

[Dottore]

Originally Posted by herr_oberst

I once saw a guy in the checkout line with a single carton of generic cigarettes on one of those enormous green flatbed carts. I still chuckle when I think about it.

you are one wild and crazy guy, herr oberst!