The Ledger
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Costco delayed its China entry for decades after refusing a $30,000 bribe
“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 …”
Rosenthal: Studying non-tech giants is more valuable than tech case studies
“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.”
Munger says Walmart made a terrible mistake letting Costco win wealthy suburbs
“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.”
Rosenthal: Great companies retain homegrown or long-tenured senior executives
“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…”
Schultz: Selling in Costco Directly Increased Starbucks Retail Store Sales
“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.”
Costco co-founder Jeff Brotman stepped aside as CEO after board struggle
“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…”
Munger says great investment opportunities only happen five or six times
“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…”
Costco was the first company to hit $3 billion revenue within six years
“And three billion in less than six years, which is the first company ever to hit that milestone, too.”
Sol Price ranked customer value and employee wages above investor profit
“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…”
Costco has the lowest retail prices and the wealthiest major customer base
“They have the lowest prices, but they have the wealthiest consumers of any major retailer.”
Costco likely generates net revenue from its Citi and Visa co-branded cards
“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…”
Costco is the largest buyer for most of its suppliers, ahead of Walmart
“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.”
Costco's Kirkland Signature generates more revenue than all of Nike
“Their store brand, Kirkland Signature, does more revenue alone, not including anything else in the store than all of Nike.”
Gilbert: Low-SKU strategies demand exceptional curation due to high leverage
“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.”
Gilbert: A publicly traded Trader Joe's would be worth $32B to $35B
“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 …”
Great companies deliberately leave their potential profit unextracted
“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.”
Schultz: Costco Co-Founder Jeff Brotman Invested in Starbucks' 1987 Buyout
“First, Jeff Brotman invested in Starbucks in the round to buy Starbucks.”
Sol Price intentionally designed warehouse clubs for wealthy shoppers saving money
“No, so price had that figured out to announce. Yes. He always wanted the rich man trying to save money.”
Munger says Floor & Decor is running the Costco model in flooring
“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.”
Munger says Warren Buffett refused to buy Carrefour's stake in Costco
“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.”
Costco sold cheaper than anyone with efficient stores and 10-foot parking spaces
“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.”
Costco's fully owned Nebraska facility processes two million chickens per week
“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…”
Costco's merchandise shrinkage rate is an astonishingly low 0.15% of sales
“The shrinkage, or the unaccounted for merchandise, At Costco today is astonishingly low. It is 0.15% of sales.”
Costco returned 80% of net income to shareholders over the past decade
“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 pays an average hourly wage of $26 versus Walmart's $19.50
“Costco's average hourly wage is 26 dollars, and Walmart's is nineteen-fifty.”
An average Costco warehouse generates $269 million in annual sales
“Two hundred and sixty-nine million dollars of sales per store on average per year.”
Costco's first China store reached 400,000 members in two years
“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.”
Costco generates approximately ten times more revenue per SKU than Walmart
“The average revenue per product, because of the SKU count, at Costco is about 10 times Walmart.”
Costco enforces a strict 14% markup cap on all standard products
“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.”
Costco's 2022 first-year store sales exceeded 2014 cohorts' fifth-year sales
“Year one of a store opened last year was better than year five of a store opened in 2014.”
The $1.50 hot dog combo is likely Costco's only loss leader
“There's a decent chance this is the one and only loss leader that Costco sells today.”
A 2001 coffee with Jim Sinegal inspired Amazon's core low-price philosophy
“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…”
Upfront membership fees and bulk buying inherently filter for wealthy consumers
“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…”
Costco expanded its US warehouse footprint over a decade while Sam's Club shrank
“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 …”
Costco operates at an 11% gross margin and will never expand it
“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.”
Wholesale warehouse models eliminate internal logistics and trucking operations
“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…”
Costco Executive members represent 45% of global memberships but 73% of sales
“Interestingly, 45% of paid members worldwide are executive members. But those members represent 73% of sales.”
Costco generates $1,800 per square foot versus Walmart's $600 and Target's $450
“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 operates at 10% to 11% overhead compared to Amazon's roughly 30%
“Costco runs at 10, 11% overhead, and Amazon runs closer to, like, 30% overhead”
Kirkland Signature generated $52 billion last year, roughly a quarter of Costco's revenue
“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 …”
A low-selection retail strategy requires high product quality and market-leading deals
“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…”
Capital cannot eliminate Costco's physical and operational store scaling bottlenecks
“There are bottlenecks everywhere to scaling, and no amount of cash is gonna solve that problem.”
92% of Costco's merchandise is cross-docked compared to 10% for Walmart
“92% of Costco's merchandise is cross-stocked. Only 10% of Walmart has cross-stocked merchandise on a pallet system like this.”
Costco sells 500 million rotisserie chickens globally every year
“They sell five hundred million chickens a year. Not pounds, chickens.”
Costco strategically converts brand trust into sales volume rather than excess margin
“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…”
Gilbert: Bezos Prioritizes Lifetime Margin Dollars Over Percentage Gross Margin
“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.”
Rosenthal: Costco generates essentially zero percent operating margin on retail operations
“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.”
Rosenthal: All of Costco's profits come from annual membership fees
“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.”