Costco

“So Walmart has over 20% market share of us groceries. Kroger has under 10% and then Albertsons and Costco are tied at five percent each.”

“If you look at Walmart's twenty-four-ish percent gross margin, so that's basically what they get from the goods that they sell on the shelf, you see, ok, it's less than Target, which makes 29 30% of anything that they sell on the shelf. Well, Costco's gross pr…”

“Costco does two hundred and seventeen billion dollars a year in revenue. Sam's Club does about seventy five billion.”

“Jeff is absolutely laser focused on not gross margin percentage, but the absolute dollar amount of margin dollars over a full customer lifetime that you can sort of get.”

“They make essentially, it's more complicated than this, but essentially they make Zero percent operating margin on their retail operations. They sell at such a low price.”

“When you take out the cost of running both the backend logistics and the warehouses themselves, they are making no profits on the actual retail business, and all of the profits of the company come from the memberships, the annual memberships.”

“They learned, and then they proceeded to build their own fully-owned facility in Fremont, Nebraska, outside of Omaha, And build relationships with 150 local farmers in the surrounding area. I mean, this is nuts. That facility processes two million chickens a w…”

“And so today I think about 25% of their SKUs are these treasure hunt items.”

“The shrinkage, or the unaccounted for merchandise, At Costco today is astonishingly low. It is 0.15% of sales.”

“There have been three CEOs in the history of Costco. Saul Price, Jim Senegal, Craig Jelinek. All of whom worked at FedMart.”

“So, Walmart's revenue today is about three times Costco in the US.”

“The company has returned 80% of net income to shareholders in the last decade rather than reinvesting it in growth, and the key reason for this is that it's just really, really hard to expand.”

“Costco's average hourly wage is 26 dollars, and Walmart's is nineteen-fifty.”

“Two hundred and sixty-nine million dollars of sales per store on average per year.”

“And three billion in less than six years, which is the first company ever to hit that milestone, too.”

“The first store in China opened in twenty-nineteen, which popped to 400,000 members within two years. The U.S. At maturity is at 68,000 members.”

“As Saul is running the company during these first few years, he starts to codify some retail management philosophies, and he famously sort of canonizes these as FedMart's four priority order principles, and he teaches every new employee throughout the whole co…”

“55% of U.S. Members now do it.”

“The average revenue per product, because of the SKU count, at Costco is about 10 times Walmart.”

“They have enforced a strict cap on the margin that they are willing to make on any product. So they have decided internally that they are not allowed to mark up anything more than 14% above what these suppliers sell it to them for.”

“They have the lowest prices, but they have the wealthiest consumers of any major retailer.”

“Year one of a store opened last year was better than year five of a store opened in 2014.”

“So if you look at Costco today, 36% of U.S. Employees have over 10 years of service.”

“If you look at their executive team at Costco today, Basically, all of them have been there for over 25 years. The only vice presidents at the company who have not are the digital e-commerce people that they had to bring in to address some issues.”

“Costco actually turns their inventory 12.4 times per year. And just for comparison, Walmart turns their inventory eight times per year. Home Depot is more like five times per year.”

“93% of members in the U.S. Renew every single year.”

“And this is why they generate over 730,000 dollars of revenue per employee.”

“There's a decent chance this is the one and only loss leader that Costco sells today.”

“The only exception to this is Kirkland Signature, where they cheat a little bit and let themselves go up to 15%.”

“Jeff has this coffee with Jim, and Jim explains this philosophy to Jeff. Jeff comes back to Amazon HQ the next day and is like, I'm reversing the policy, and says exactly what you just said. There are two types of companies in this world. Companies that work h…”

“Costco is the largest seller in the world of fine wines. Fine wines are defined as 20 to 300 dollar bottles.”

“They sell one third of the jumbo cashews in the entire world.”

“The first one is that it actually selects for wealthy customers. As does buying in bulk. So the items that you're buying are literally cheaper per unit, so you're saving money, but you need to buy a lot of it up front, just like you need to pay a membership fe…”

“The average Sam's Club only generates about half the revenues of a Costco, and that gap has widened over time. Given the unit economics of the business, that's a tough hurdle to overcome, which explains why Sam's Club has a smaller unit base today than it did …”

“I'm pretty sure that this has never been disclosed, and I haven't asked anyone about it, but if you sort of read trade publications, people seem pretty convinced that Costco is making money, which of course they are, on the deal that they cut with Citi and Vis…”

“For most if not all of their suppliers, they are by far the biggest buyer of their goods. Even bigger than Walmart, because they have so many fewer SKUs in the store.”

“And you're the third biggest player in the largest market, you know, America, behind Amazon and Walmart.”

“All of their market managers and country managers come to headquarters for two days every single month. So no matter what market you manage, you fly to Issaquah. That's a 160 people. To all sit in a room for two days and just talk about what's working, what's …”

“The company has never done a layoff.”

“Costco has grown revenue right about 10% for over 30 years in a row.”

“Even though Costco is only an 11% gross margin business, and only ever will be an 11% gross margin business, it's still a pretty amazing business to own.”

“If you're operating a wholesale warehouse, you don't have to operate any logistics. The manufacturers deliver the product right into your warehouse. You don't need to run trucks. You don't need to operate other warehouses. You don't need to move stuff around t…”

“It is accurate to say that membership fees represent about 70% of the company's operating income, with the other 30% of the profit margins coming from retail. It's been a little bit more than 30% in recent years, but that's sort of the historical split.”

“Interestingly, 45% of paid members worldwide are executive members. But those members represent 73% of sales.”

“After the first year, Costco today has only a seven percent attrition rate among their workforce.”

“Target's about 450 dollars per square foot of revenue. Walmart's about 600 dollars. Costco is 1800 dollars per square foot of revenue.”

“Costco runs at 10, 11% overhead, and Amazon runs closer to, like, 30% overhead”

“Fifty two billion dollars of Kirkland Signature sales were done last year. That does not include the Kirkland Signature gas, so out of Costco's two hundred and thirty billion top line, a little under a quarter of it was Kirkland Signature sales, and closer to …”

“Their store brand, Kirkland Signature, does more revenue alone, not including anything else in the store than all of Nike.”

“You can't just have low selection and be like, well, it's all cheap stuff. It has to be, like, high quality in its category and the best deal on the market in order for people to be ok with low selection, which drives low SKU count, which drives all the amazin…”

“There are bottlenecks everywhere to scaling, and no amount of cash is gonna solve that problem.”

“Costco in the last 10 years was around 4500, and then they sort of looked and said, can we bring it down and went to 4000? And today they're sitting at 3800. So this number is still going down, not up.”

“There was an independent research firm that found that the typical Costco consumer makes about a 125,000 dollars a year in household income and has a four-year degree. Walmart, by comparison, has a median income of about 80,000 dollars. And keep in mind, the m…”

“92% of Costco's merchandise is cross-stocked. Only 10% of Walmart has cross-stocked merchandise on a pallet system like this.”

“If you bought 10,000 dollars of shares in their IPO in 1985, you would have 3.3 million dollars today, a 330 X, and this does not include the dividends you would have earned along the way, which they've actually done a lot of dividends, including four-ish spec…”

“They sell five hundred million chickens a year. Not pounds, chickens.”

“Costco will never generate excess margin because of their brand. But their brand earns them something. I mean, people become members and trust them, and that leads to something. I assume it leads to volume, it leads to willingness to buy, which leads to volume…”

“They also sell a hundred and thirty million of them per year.”

“They had originally agreed that Brotman would be the chairman and CEO, because he was his idea. He founded the whole thing, but Senegal decided, no, I have to be the CEO. So, it was a big, unfortunate board meeting, a big internal struggle, and Brotman moved a…”

“There aren't many times in a lifetime when you know you're right and you know you have one that's really going to work wonderfully. Maybe five, six times in a lifetime you get a chance to do it. And people do it two or three times early. All go broke because t…”

“No, so price had that figured out to announce. Yes. He always wanted the rich man trying to save money.”

“The first store they tried to open in China, the first store somebody wanted a 30,000 dollar bribe. You know, Chinese culture. And they just wouldn't pay it. And that made such a bad impression on Jim Senegal. He wouldn't even talk to him going into China for …”

“They make the suppliers wait until they've been paid, and then they're scheduled to pay only after they're scheduled to sell.”

“Floor and Decor is the current imitator, and it's just, it's in vinyl, wood imitating vinyl flooring, they're running a Costco model.”

“So it offended them to go against the rich suburbs and to have to pay up for the good locations, and Costco just specialized in the good locations where the rich people live. And Walmart just let them do it year after year. It was a terrible mistake.”

“I tried to get Warren to buy out the French. When they left, careful. And Warren wouldn't do it. Warren doesn't like retailing.”

“Well, they really did sell cheaper than anybody else in America, and they did it in big efficient stores, and all the parking spaces were 10 feet wide instead of eight feet nine or whatever they normally are.”

“And this actually continued until 1991 for many of their merchants and for Costco, Went all the way to 2016, where they had the exclusive agreement with, ah, Amex, and if you were gonna use a credit card at Costco, it had to be Amex.”

“Is that those stories and studying the LVMHs, the Costcos, the Nikes of the world, if anything, that's like even more important than studying the great technology companies for building a great technology company.”

“In fact, putting Starbucks in Costco, we were able to measure directly The increase in volume in the stores on the east side as a result of the proximity to the Costco store.”

“First, Jeff Brotman invested in Starbucks in the round to buy Starbucks.”

“This is almost always true, really is true in every great company that I can think of. The core senior most executive team are all people who came up in the company Or have been there for a very, very long time. It's not a whole bunch of mercenaries there at t…”

“And actually, I happen to know, the founders of Costco made a special trip up to one of the Canadian Ikeas, even before the founding of Costco, because they had so much respect for IKEA as a brand they admired. They, like, wanted to go and see it and experienc…”

“Ikea's gross margins are, like, mid-thirty percent, and Costco's are 13%.”

“Costco is 1800 dollars a foot. They are trying to maximize their dollar per foot. Walmart is about 600. Target is about 450 dollars. And then these, like, crazy businesses, just to compare it to the all-time greatest, Tiffany is 3000 dollars a foot for jewelry…”

“Every great company has like a stored potential energy of value maximization that it doesn't fully maximize. Like Costco is the extreme example of this, but Google has this too.”

“Trader Joe's probably trades at north of one X, but probably not all the way at Costco 1.6 X. I don't know, maybe around there. So on that 23, twenty four billion in revenue that we estimated, call it a 32 to thirty four billion dollar company, maybe a thirty …”

“They famously only mark up 11 to 14%.”

“Trader Joe's and Costco both only stock about 4000 items at a time.”

“There are a set of laws called fair trade laws that impact Everything that retailers sell in this era. It's actually kind of crazy. It's a holdover from the depression. We talked about it on the Costco episode where it was illegal for retailers to sell goods b…”

“On average, it takes them 27 days to sell through their entire inventory, which means that's on net 30 terms, three days of grace where the inventory is actually financed by the vendors and then some.”

“If you're only going to sell very few things, you're only going to make very few episodes, it puts a lot of onus on making Exceptional choices on the things that you do choose to carry. So it's like a very high leveraged strategy.”