“Let’s go to Costco”, is one of the phrases with which many families in the US and Mexico are familiar, since it is an activity in which they can find thousands of products, from food to tires, at low prices that cannot be found in other stores.
A fact to measure the popularity of Costco is that, for example, Walmart has approximately 10,500 stores around the world and in fiscal year 2022 reported revenues of 572,754 million dollars (mdd). While Costco, with less than 10% of stores (842) that Walmart has, achieved revenues of 222.7 billion dollars in fiscal year 2022.
This means that, on average, Each Costco store generates annual revenue of $264.4 million.while each Walmart unit (counting all its brands) generates an average of 54.5 million dollars.
What makes Costco’s business model so successful? Here we tell you its history and how this price club works.
History of Costco and when it arrived in Mexico
It all started in July 1976 in San Diego, California, with a store called “Price Club”, but it was not until 1983 that the first Costco Wholesale store opened in the north of the United States in Seattle, Washington. This became the first company to increase its sales from zero to 3 billion dollars in less than 6 years.
The first store that arrived in Mexico was in 1992 called Price Club, located in Ciudad Satélite, by Grupo Comercial Mexicana.. In 1993 Price Club and Costco merged to form “Costco Wholesale” and began calling their stores “Price Costco” until finally “Costco.”
In 2012, Grupo Comercial Mexicana sells its stake to Costco Wholesale. Five years later, the company opens its first gas station in Mexico, in San Luis Potosí. According to data from Costco Mexico, they currently have 40 branches in the country, employ 12,000 people and their headquarters are located in Huixquilucan, State of Mexico.
Globally, it is present in 14 countries with 842 stores:
- 579 in the United States and Puerto Rico;
- 107 in Canada
- 29 in the UK;
- 14 in Taiwan;
- 18 in Korea;
- 31 in Japan;
- 13 in Australia;
- 40 in Mexico;
- 4 in Spain;
- 1 in Iceland;
- 2 in France;
- 2 in China;
- 1 in New Zealand and
- 1 in Sweden
It employs 304 thousand full-time and part-time people around the world.
Costco business model
Costco uses a clear strategy: have a limited number of items, keep costs low, sell in high volume, pay workers well, and have high-end affiliate customers, especially small business owners. Below, we’ll explain what Costco’s business model looks like and what makes it so successful.
Memberships
Being a price club, Costco works with an annual membership system, with an approximate cost of 60 dollars. According to company data, at the end of August 2022 there were 118.9 million members (cardholders) in the world. Counting only Mexico, there are approximately 5 million members.
If we compare it with other businesses that also work with subscriptions, the HBO Max service has fewer subscribers (92 million) and Netflix has more (223 million), but spread over 190 countries, when Costco is present in only 14.
Low prices
These memberships allow members to access products with prices that are usually lower than in supermarkets and department stores. The company also manages manufacturing processes, such as its own meatpacking plant, optical laboratory, and jewelry distribution.
According to Craig Jelinek, CEO of the company, “Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, luxury buildings, delivery, billing and more. and accounts receivable. We run a tight operation with extremely low overhead, allowing us to deliver dramatic savings to our members.”
The company buys most of its products directly from manufacturers, who in turn ship them to sales warehouses or consolidation centers where transportation costs are minimized.
Kirkland own brand
Costco sells products from various brands at low prices, but it’s not just that. It has Kirkland, its own brand, which sells everything from juice, cookies, coffee, household items, luggage, clothing and detergent to tires. The company claims that the quality of Kirkland products is equal to or better than national brands.
In 2021, Kirkland had sales of $59 billion.more than other retail giants, such as Unilever ($52 billion), Coca-Cola ($38.6 billion) or Nike ($44.5 billion).
Carefully selected products
According to a Whitepaper analysis, a store has nearly 4,000 SKUs, far fewer than Walmart (142,000), Target (80,000), and Home Depot (35,000). ). This means that Costco limits the number of products, prioritizing fast-selling models, sizes and colors, often only in boxes and multipacks.
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