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Costco
Costco Wholesale Corporation
Type Public (NASDAQ: COST)
Founded 1983 (Seattle, Washington)
Headquarters Issaquah, Washington
Key people James Sinegal, Founder & CEO
Jeffrey Brotman, Founder & Chairman
Richard Galanti, CFO
Dick DiCerchio, COO
Industry Retail (Warehouse Club)
Products Retail (Specialty)
Private Label - Kirkland Signature
Revenue $60.2 billion USD (2006)
Employees 132,000
Website Costco U.S.
Costco Canada
Costco Wholesale Corporation (NASDAQ: COST) is the largest membership
warehouse club chain in the world based on sales volume, headquartered in
Issaquah, Washington, United States,[1] with its flagship warehouse in
nearby Seattle.[2] Costco's Canadian operations are based near Ottawa,
Ontario, and Vancouver, British Columbia.
History
Founded by James Sinegal and Jeffrey Brotman, Costco opened its first
warehouse in Seattle, Washington on September 15, 1983.[3] 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. 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.[4] 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.
In 1997, the company changed its name to Costco Wholesale.[5]
Costco today
The main competitor in the membership warehouse space is Sam's Club.
Although Sam's Club has more warehouses[6] than Costco, Costco has higher
total sales volume.[7] Costco employs about 132,000 full- and part-time
employees,[8] including seasonal workers, and for fiscal year 2006, ended on
September 3, 2006, the company's store sales totaled $60.2 billion[8] of
which $1.1 billion was net profit.[9] Costco is #32 on the Fortune 500.[9]
As of July 12, 2007, Costco has 512 locations:[8]
* 377 in the United States and Puerto Rico
* 71 in Canada
* 30 in Mexico (50-50 joint venture)
* 19 in the United Kingdom
* 5 in South Korea
* 6 in Japan
* 4 in Taiwan
In the United States, Costco is closed on the following holidays (most other
major retailers stay open on all of these dates except Easter, Thanksgiving,
and Christmas):
* New Year's Day
* Easter
* Memorial Day
* Independence Day
* Labor Day
* Thanksgiving Day
* Christmas Day
In India, Costco is exploring a joint venture entry into the heavily
regulated wholesale retail sector with Bombay Dyeing Ltd. The discussions
are on nascent stage. It is difficult to gain foot hold in India's retail
market due to tough regulations.
Other retail formats
Costco currently operates two other retail formats, a home furnishings
concept known as "Costco Home," and a strictly business operation known as
"Costco Business Center."
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.
Plans for Costco Fresh, a gourmet supermarket, were shelved in 2004.
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 businesses. Furthermore, Costco does not carry multiple brands
or varieties where the item is substantially the same. 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" from Costco on all purchases made (excluding gasoline 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).[8] 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. To avoid credit card processing fees,
United States Costco locations only accept American Express (not in the UK
and only Samsung credit cards in South Korea), PIN-based debit cards (Interac
in Canada), cash, and checks. Guests of members are not allowed to write
checks.
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 burning.
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 and drink for $1.50, the same price as when
(pre-merger) Costco opened in 1983.
Costco Cash Cards
Costco Cash Cards can be purchased in the warehouse and members can load
them with money to make non-cash purchases at all Costco warehouses in the
United States. Because Costco gas stations take only Costco Cash, debit
cards, and American Express, people who normally pay for gas by check or
cash must purchase a Costco Cash Card inside the actual Costco building
before filling up.
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, dairy, 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
processors, and gas stations.
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 a (single) original artwork by artist Pablo Picasso
on their online store.
Kirkland Signature
Kirkland Signature is Costco's store brand, otherwise known in the retail
industry as an "own-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.[10]
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.[11]
Trivia
* The very first Price Club location was an old airplane hangar, and is
still in operation today (Warehouse #401 San Diego).
* The price of a kosher hot dog and a soft drink at the food court is still
$1.50, the same as it was when (pre-merger) Costco first opened in 1983.
* Prior to the 1993 Price Club/Costco merger, Wal-Mart founder Sam Walton
wanted to merge Sam's Club with Price Club.[12]
* In 2006, former Buckingham Nicks drummer Gary Hodges and bassist Tom
Moncrieff helped form a rock band named Sinai 48 after the Kosher Polish
hotdogs sold in the Costco food court. The four member band consists of
three members of Jewish descent.
Working at Costco
While some former Price Club locations in California and the northeastern
United States are staffed by Teamsters, the majority of Costco locations are
not unionized. The non-union locations have revisions to their Costco
Employee Agreement every three years concurrent with union contract
ratifications in locations with collective bargaining agreements. Similar to
a union contract, the Employee Agreement sets forth such things such as
benefits, compensations, wages, disciplinary procedures, paid holidays,
bonuses, and seniority. As of March 2007, non-supervisory hourly wages range
from $11.00 to $19.50.
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 WA[13]. Costco also uses Club Demonstration Services,
based in San Diego, California. [14].
Notes
1. ^ http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-shareholder
2. ^ http://www.costco.co.jp/eng/costco.htm
3. ^ http://www.costco.com/Browse/ProductSet.aspx?Prodid=24743&whse=&topnav=&browse
4. ^ http://media.corporate-ir.net/media_files/irol/83/83830/HistoricalHighlights.pdf
5. ^ http://www.costco.com/Membership/MembershipPopup.aspx
6. ^ http://pressroom.samsclub.com/content/?id=3
7. ^ http://www.hoovers.com/sam%27s-club/--ID__56161--/free-co-factsheet.xhtml
8. ^ a b c d http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-homeprofile
9. ^ a b http://money.cnn.com/galleries/2007/fortune/0704/gallery.500top50.fortune/32.html
10. ^ Business Spotlight: Costco Wholesale. Retrieved on 2006-10-26.
11. ^ http://www.findarticles.com/p/articles/mi_m0FNP/is_23_44/ai_n15969670
12. ^ http://money.cnn.com/magazines/fortune/fortune_archive/2003/11/24/353756/index.htm
13. ^ http://wdsdemos.com/
14. ^ http://www.clubdemo.com/About_Us.htm
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