Sam's "Poor Ghost Package" has become popular again recently. Compared to Sam, who has been in the Chinese market for 28 years and has sparked discussions on social media, Costco, which only entered mainland China in 2019, appears somewhat low-key.
Despite appearing low-key, this company has many high-profile achievements behind it.
Costco is the third largest retailer in the world, behind Wal Mart and Amazon.
In the 2023 Fortune Global 500 list, Costco ranked 26th. [2]
Costco achieved a total revenue of $242.29 billion (approximately RMB 1751.6 billion at the March 24, 2024 exchange rate) and a net profit of $6.292 billion for the fiscal year 2023. [3]
As of February 18, 2024, Costco's cardholder membership has reached 130 million. [4]
When it comes to Costco, we have to mention American investor Charlie Munger. Munger's fascination with Costco even caused Buffett's "roast".
At the 2011 annual shareholder meeting of Berkshire Hathaway, when Munger was always praising Costco, Buffett, who was tired of listening, made a joke:
Once, two terrorists hijacked a plane and wanted to execute Munger and me as' dirty capitalists'. The hijackers said they could fulfill our last wish.
As a result, Munger asked if he could give another speech on the advantages of Costco, which would still be illustrated.
The hijacker (surprisingly) thought Munger's request was reasonable and instead asked me, "What do you want to do, Buffett?"? I said, "Why don't you kill me first?" [5]
Even such Costco may inevitably face some doubts. On the internet, Chinese consumers shared their feelings about the difference between Costco and Sam.
The blogger said that Costco shopping makes it difficult to find what they want, and Sam has category names on the top of each large shelf, making it easy to find things.
To the surprise of the blogger, this was not actually a display of chaos, but rather intentional by Costco.
Unlike most stores, Costco stores do not have hallway signs or mall maps to help with quick shopping. [6]
At the same time, Costco's shelf channels are simply marked with numbers, and stores will regularly change the display location of products and replace them with new ones. [6]
Therefore, consumers must shuttle between the shelf channels to find the products they need. In this process, it is easy to be attracted to other products and generate a lot of additional consumption.
Bloggers who later learned about this strategy still lamented in the comment section that they were "manipulated" and bought more.
Through search, we found that there are many posts of "roast" Costco's difficulty in finding something at home and abroad. But Costco insists on not making any changes.
So, what are the thoughts behind Costco's design? As a retail giant that attracts 130 million members worldwide today, what is special about it?
Costco is a loyal supporter of using treasure hunt retail psychology.
In 2018, Thad Kleszcz, the general manager of Costco's Calver City, California store, explained the layout strategy of Costco's store - the store's layout was designed as a maze, encouraging customers to walk around the store more. [7]
This also explains why Costco doesn't have hallway signs that most grocery stores and supermarkets have. It's hoping you can't find your way.
Kleszcz also revealed that employees will work hard and change product locations before the store opens.
In this way, consumers will have a different feeling every time they go to Costco, which can encourage them to make purchases and even look forward to coming back to Costco again to see what changes have occurred. Employees never intentionally hide products to deceive customers, and adjusting product positions is just to make shopping more interesting. If the containers are always displayed in the same way, consumers may feel bored and may not come to Costco frequently.
Of course, Costco's layout is not completely disrupted. It is understood that Costco has an overall layout that people hope to follow.
For example, when customers first enter the store, they can see some high-value products, usually jewelry, televisions, laptops, etc.
The Costco roasted chicken, known for its low price of $4.99, is placed in a strategic position. If consumers want to buy a $4.99 roasted chicken at Costco, they will pass through many other products and then reach the cooked food area.
Costco's CEO Ron Vachris stated that in 2023, Costco sold 137 million roasted chickens worldwide. [8] For companies, if most consumers are attracted to buy a few more products on the way to buy roasted chicken, these "loss making" roasted chickens can also be considered as completing their tasks.
When it comes to layout, we have to mention the membership gas station next to Costco stores, which is also considered another "ace" of Costco outside of roasted chicken.
In 1995, Costco opened its first gas station, promising to provide its members with high-quality gasoline at the lowest possible price.
Costco's goal is not to make too much money from gas stations, but to attract consumers who come to refuel to enter stores and purchase other products by lowering oil prices as much as possible. Meanwhile, the daily consumption of gasoline can also reverse the fixed frequency of consumers going to Costco.
The fact proves that this strategy is effective. Many consumers are willing to go to Costco for a lower oil price, which often leads to queuing at its gas stations.
It is reported that Costco has operated self-service gas stations in the United States, Canada, Australia, Japan, the United Kingdom, Spain, Mexico, Taiwan, China and Iceland. [4] Costco, located in Nanjing, will also open the first Costco gas station in mainland China. [9]
Some netizens have expressed that gas stations are the "soul" that Costco's mainland Chinese stores lack. Next, Costco members in mainland China can also experience more authentic Costco stores.
Costco is passionate about the "treasure hunt game" and has also set up a "Treasure Hunt" section on its official website to showcase Costco's latest discoveries of "good items" and attract consumers to make purchases.
It is not difficult to see that Costco wants to promote people's impulsive consumption. Through treasure hunting games, it hopes that consumers can visit more stores, shop longer, and buy more.
Costco said when discussing the company's history, "Costco has changed the retail world.". [10]
The development of Costco can be traced back to 1976. Back then, entrepreneur Sol Price opened a membership warehouse called Price Club in San Diego, California. It is reported that the company initially only provided services to small businesses, but later found that by serving selected non corporate member audiences, it can achieve greater purchasing influence. With this change, the membership warehouse industry has also begun to develop rapidly.
In 1983, Jim Sinegal, a proud student of Sol Price, and Seattle retailer Jeff Brotman opened their first Costco membership warehouse in Seattle. Subsequently, Costco became the first company to increase sales from zero to $3 billion in less than 6 years.
In 1993, Costco and Price Club merged, and the merged company operated under the name of PriceCostco. In 1997, PriceCostco officially resumed using the Costco name. As of March 14, 2024, Costco has 876 stores. [4]
Currently, Costco has 130 million members worldwide. So how does it attract consumers?
In Costco's view, its business philosophy is very simple - to reduce costs and pass on the saved expenses to members.
The Wall Street Journal pointed out that Costco's products are sold at an average price increase of only 11%, while products in regular retail stores often increase by 25-50%. Costco's business model is to sell products at the lowest possible price, relying on membership fees to make money. Increasing profits by raising product prices would violate the company's internal guidelines. [6]
Costco also places great emphasis on product selection, and its commitment to quality has attracted and retained more and more members. According to the company's official website, Costco has approximately 4000 SKUs, while most supermarkets have 30000 SKUs.
Costco stated that it will provide its members with the most valuable products by carefully screening based on quality, price, brand, and functionality.
In order to offer lower prices, Costco will also consider saving money from as many places as possible.
Former CEO of Costco, Craig Jelinek, stated that in order to provide lower prices and higher value, Costco has eliminated almost all the virtual shelves and costs associated with traditional wholesalers and retailers in history, including sales personnel, high-end construction, delivery, billing, and accounts receivable. The company operates strictly with extremely low management costs, bringing huge savings to its members. [4]
What if there is no brand that can directly meet Costco's proposed selling price? In this situation, Costco will choose to do it themselves.
Costco launched its own brand Kirkland Signature in 1995. It is understood that the brand name was inspired by the original headquarters of Costco in Kirkland, Washington.
The company shouted the slogan "Kirland Signature means quality and value" and provided many low-priced, high-quality, and high-value products, which were welcomed by Costco members.
Data shows that Kirkland Signature's own brand sales increased from $35 billion in 2017 to $39 billion in 2018, with a sales growth rate of over 10%, slightly higher than the sales growth of all Costco products. Kirkland Signature's own brand has also become a special factor for consumers to choose Costco over other retailers. [11]
Costco has expanded its brand influence by offering good products with good prices, attracting more people to apply for membership. At the same time, these members have high loyalty, driving Costco's continuous development.
It is understood that since the establishment of Costco, the company has always followed the guiding principle of doing the right thing for its members, employees, suppliers, community, and environment. Costco believes that "when we do the right thing, good things happen.".
Costco's CEO Ron Vachris emphasized that Costco's thriving development is due to employees with diverse perspectives, experiences, and ideas. [4] Despite Costco's large scale, the company still hopes to provide a family atmosphere that allows employees to thrive and achieve success.
For example, the company has launched a "college student retention plan" that allows employees to retain their positions while pursuing a degree.
Speaking of which, it is also necessary to mention a small story about Ron Vachris, the current CEO of Costco. In 1982, 18-year-old Vachris worked as a forklift driver at Price Club while studying at Glendale Community College. At that time, he definitely didn't expect to take over this company in more than 40 years (Vachris officially succeeded Craig Jelinek as CEO on January 1, 2024).
In addition, the official website of Costco in the United States shows that its company will provide employees with a paid floating leave in addition to regular paid leave, allowing them to celebrate meaningful days for them, such as Indigenous Day, Veterans Day, etc. At the same time, the website also provides a specialized job application process for veterans, hoping to help them find new career opportunities.
"Undoubtedly, the most important factor for our success and our greatest advantage is our employees," emphasized Craig Jelinek, former CEO of Costco.
Finally, let's return to the 2011 Berkshire Hathaway Annual Shareholders Meeting and summarize with a brief evaluation of Costco by Munger.
"This is an example of having the right management system, the right personnel selection, the right moral standards, the right diligence, and so on. This is quite rare. If you have one or two connections with such a company in your life, then you are a very lucky person."