Costco Wholesale Corporation is the largest membership warehouse club chain in the world based on sales volume, headquartered in Issaquah, Washington, United States and founded in Kirkland, Washington, with its flagship warehouse in nearby Seattle. Costco's Canadian operations are based in Ottawa, Ontario. It is the fourth biggest general retailer in the United States, after Wal-Mart, The Home Depot, and Kroger.
Founded by James Sinegal and Jeffrey Brotman, Costco opened its first warehouse in Seattle, Washington, on September 15, 1983. Sinegal had started in retailing by working for Sol Price at both FedMart and Price Club. Brotman, an attorney from an old Seattle retailing family, had also been involved in retailing from an early age.
In 1993, Costco merged with Price Club (called Club Price in the Canadian province of Quebec). Costco’s business model and size were similar to those of Price Club, which was founded by Sol and Robert Price in 1976 in San Diego, California. Thus, the combined company, PriceCostco, was effectively double the size of each of its parents. Just after the merger, PriceCostco had 206 locations generating $16 billion in annual sales. PriceCostco was initially led by executives from both companies, but then Sol and his son Robert Price founded Price Enterprises and left in 1994.
The very first Price Club location was an old airplane hangar, previously owned by Howard Hughes, and is still in operation today (Warehouse #401 San Diego).
In 1997, the company changed its name to Costco Wholesale.
The main competitor in the membership warehouse space is Sam's Club. Although Sam's Club has more warehouses than Costco, Costco has higher total sales volume. Costco employs about 132,000 full- and part-time employees, including seasonal workers. It has 51.8 million members, representing 28.3 million households . For fiscal year 2007, which ended on September 2, 2007, the company's store sales totaled $64.4 billion. In 2006, $1.1 billion of the revenue was net profit. Costco is #29 on the Fortune 500. The ACSI (The American Customer Satisfaction Index) named Costco number one in the retail industry with a score of 81 in 2006.
Costco became the first company ever to grow from zero to $3 billion in sales in less than six years.
There are currently two Costco Home locations (Washington State & Arizona, both in former HomeBase warehouse stores) with plans for a third on the west coast. Costco membership is required, and hours of operation are identical to that of regular Costco warehouses.
There are a handful of Business Centers, all of which offer delivery via a private fleet of trucks. Some locations have a retail selling floor open to Costco members who wish to shop in person, while others are strictly delivery only. A new Business Center, located in an existing Costco location, is planned for Las Vegas, Nevada.
Plans for Costco Fresh, a gourmet supermarket, were abandoned in 2004.
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 businesses. Furthermore, Costco does not carry multiple brands or varieties where the item is essentially the same except when it has a house brand to sell, typically under the Kirkland Signature label. This results in high volume of sales from single vendor, allowing further reduction in price, and reducing marketing costs. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors.
Currently membership fees at Costco are $50 per year for Goldstar and Business Memberships, which can be upgraded to Executive membership for an additional $50 per year. Along with the additional benefits the executive membership has (e.g. car purchasing savings, home loans, car insurance, check printing services) executive members also receive an annual "2% Rewards Check" of up to $500.00 from Costco on all purchases made (excluding select items such as gasoline, alcohol, and tobacco).
Costco is only open to members and their guests, except for purchases of liquor and gasoline in some U.S. states due to state law; and prescription drugs due to federal law. Memberships must be purchased in advance for one year (as of May 5, 2007). 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 Costco Cash Cards also do not require a membership, and there is no surcharge. Canadian and United States Costco locations only accept American Express (not in the UK), PIN-based debit cards (Interac in Canada), cash, and checks. Guests of members are not allowed to write checks. American Express is the only accepted credit card (in the United States and Canada) because they do not charge Costco retailer fees (a percentage of revenue from total sales made). As Costco's margins are low in comparison to other retailers, they cannot accept the fee without raising prices. This is an unusual relationship for American Express, which typically charges higher fees to retailers than MasterCard or Visa.
Lighting costs are reduced on sunny days, as most Costco locations have several skylights. During the day, electronic light meters measure how much light is coming in the skylights and turn off an appropriate percentage of the interior lights. During a typical sunny day, it is very common for the center section of the warehouse to have no interior lights powered on.
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 that break down pallets and stock individual products on shelves. Costco caps its profit margin on most products at 14% or 15%, but generally limits price markup on products from 8%-10%.
Most Costco locations have either a food court or a hot dog cart. Both offer a quarter-pound kosher hot dog or Polish sausage and 20 fluid oz drink (with free refill) for $1.50, the same price as when (pre-merger) Costco opened in 1983. Pizza is also available in most locations, as well as frozen yogurt in chocolate or vanilla, very berry smoothies, mocha latte freeze, chicken bake sandwiches, & twisted churros.
Costco Optical ranks as the fourth-largest optical company in the US. To fill prescriptions through the optical department, membership is required.
Some locations have liquor stores, often kept separate in order to comply with liquor license restrictions. In some states (such as Texas), the liquor store must be owned and operated by a separate company with separate employees. 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. They have also introduced an automobile purchasing program where members can purchase new cars at specially arranged prices. They also have an agreement with Ameriprise for auto and home insurance.
In 2004 Costco offered an original artwork by artist Pablo Picasso on their online store. More recently a "100 point" 1982 Mouton Rothchild wine has been offered as well as other rare wines in rotation.
Kirkland Signature is Costco's store brand, otherwise known in the retail industry as an "own-brand" or "house brand." It is found exclusively at Costco stores and is trademarked by the company. The name derives from the fact that Costco's corporate headquarters were located in the city of Kirkland, Washington, between 1987 and 1996.
Costco introduced Kirkland Signature as its house brand in 1995. The idea was to identify categories in which a private label product could provide brand name quality at discounted prices.
To counteract the consumer confidence problem common in store branding, Kirkland Signature sometimes relies on co-branding. According to Costco, while consumers may be wary of same-store-branding, they are less likely to be wary of brands that they are familiar with and trust.
Kirkland Signature products are generally rated highly. Consumer reports have given high ratings for several products including batteries and laundry detergent. A number one rating was given to Kirkland Signature anodized cookware which sells for significantly less than some comparable products.
Product-demonstration (e.g., food samples) employees are employed by an outside company. In the western USA, the company is called Warehouse Demo Services, Kirkland, Washington. Costco also uses Club Demonstration Services, based in San Diego, California.
The world's largest Costco is located in Hillsboro, OR, USA.