Costco has more that 700 locations including over 200 international locations such as Canada, Mexico, UK, Japan, Taiwan, South Korea, Australia and Iceland. Recently, in 2019, Costco opened its first location in China. The response was so positive that on opening day there were traffic jams and 3 hour wait times to park. So, what is Costco’s strategy and what is it doing right? Costco’s retail experience is often for Costco Members only. Some exceptions include liquor and pharmaceuticals. By charging a high membership fee, close to Amazon’s $99 a year, Costco can offset any costs from suppliers and present a fair value deal. Costco membership fees range from $60-$120. With the executive membership ($120) member earn a percentage back to spend again at Costco.
Internationally, Costco uses different supplier for most consumption products. In Japan we find Cheerios from France and Korean Bulgogi bakes, similar to the U.S. chicken bake. The U.S. is a prime market to sell in wholesale because we are used to a certain size and quality. In foreign Costco’s we see that the amount a person will be sold is smaller. In Japan’s case, customers tend to eat less and have smaller cars. This adaptation to the local market is a smart move as to not assume that the U.S. and Japan require the same metric ton of toilet paper. However, Costco Japan is still considered to sell large quantities for a great value. The last partnership I’d like to bring attention to is with American Express. Costco, in June 2016, stopped their long standing relationship with American Express. Before, Costco members would buy memberships and were forced to only use American Express credit cards. Interestingly, American Express has a connotation that users are wealthy. Costco switched to exclusively Visa and I would assume that this was due to contract negotiations or an outlook to be more inclusive. This decision has helped Costco increase revenues. On the international side, we still see exclusive contracts with American Express like in Japan. This is a curious case and it would be hard to believe that there is bad blood between the 2 companies.
Costco buys and sells in large quantities, so they are able to sell items at minimal profit or even at a loss. Costco’s founder told the CEO if he raised the price of hot dogs he would kill him. Costco has been serving $1.50 hot dog and soda since 1985.
Costco has brokers which look for the highest quality items to have in store. Products carried in each warehouse vary by each location even within a state. For instance, in California areas near beaches, it is popular for Costco to carry surfboards and wetsuits compared to a Costco close to a California snowy area they would have snow chains and sleds.