The entire history of Costco began with Sol Price and his son, Robert, opening the first Price Club warehouse on July 12, 1976 on Morena Boulevard in San Diego, California, thus giving birth to a totally new concept: a retail warehouse club. The Price family placed Price Club Warehouse #1 inside a series of old airplane hangars previously owned by Howard Hughes; that warehouse, now known as Costco Warehouse #401, is still in operation today.
Costco opened its first warehouse in Seattle, Washington, on September 15, 1983, by James (Jim) Sinegal and Jeffrey H. Brotman. Sinegal had started in wholesale distribution by working for Price at both FedMart and Price Club and Brotman, an attorney from an old Seattle retailing family, had also been involved in retail distribution from an early age.
In 1993, Costco and Price Club agreed to merge operations themselves after Price declined an offer from Sam Walton and Walmart to merge Price Club with their warehouse store chain, Sam's Club. Costco's business model and size were similar to those of Price Club, which made the merger make more sense for both firms. The combined company took the name PriceCostco, and memberships became universal, meaning that a Price Club member could use their membership to shop at Costco and vice versa. PriceCostco boasted 206 locations generating $16 billion in annual sales. PriceCostco was initially led by executives from both companies, but then the Price brothers soon left the company in 1994 to form Price Enterprises, a warehouse club chain in Central America and the Caribbean unrelated to the current Costco.
In 1997, the company changed its name to Costco Wholesale Corporation and all remaining Price Club locations were rebranded as Costco.
As of February 9, 2017, Costco has 727 warehouses, worldwide:508 in 44 states in the United States and Puerto Rico
94 in 9 provinces in Canada with revenues of more than $17 billion in 2014
36 in 18 states in Mexico
28 in 3 nations in the United Kingdom
25 in Japan
13 in Taiwan
13 in South Korea
8 in Australia
2 in Spain
On April 26, 2012, CNBC premiered its documentary, The Costco Craze: Inside the Warehouse Giant.
In 2014, Costco was the third largest retailer in the United States. That year Costco announced plans to open an online store in China using Alibaba Group.
In the United States, Costco's main competitors operating membership warehouses are Sam's Club and BJ's Wholesale Club. Costco employs about 174,000 full and part-time employees. In 2016, Costco had 85 million members.
Costco was the first company to grow from zero to $3 billion in sales in under six years. For the fiscal year ending on August 31, 2012, the company's sales totaled $97.062 billion, with $1.709 billion net profit. Costco is 18th on the 2015 Fortune 500. The ACSI (The American Customer Satisfaction Index) named Costco number one in the specialty retail store industry with a score of 84 in 2014.
As of December 2013, Costco's board of directors is chaired by co-founder Jeffrey H. Brotman and includes two officers of the company: President/CEO W. Craig Jelinek and CFO Richard A. Galanti.
Costco focuses on selling products at low prices, often at very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Furthermore, Costco does not carry multiple brands or varieties where the item is essentially the same except when it has a house brand to sell, generally by the Kirkland Signature label. This results in a high volume of sales from a vendor, allowing further reductions in price, and reducing marketing costs. A typical Costco warehouse carries only 3,700 distinct products, while a typical Walmart Supercenter carries approximately 140,000 products.
If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product. For example, on November 16, 2009, Costco announced that it would stop selling Coca-Cola products because the soft-drink maker refused to lower its wholesale prices. Costco resumed selling Coca-Cola products on December 14, 2009. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors.
Lighting costs are reduced on sunny days, as most Costco locations have several skylights. During the day, electronic light meters measure how much light is coming in the skylights and turn off an appropriate percentage of the interior lights. During an average sunny day, it is very normal for the center section of the warehouse not to have interior lights in use.
Most products are delivered to the warehouse on shipping pallets and these pallets are used to display products for sale on the warehouse floor. This contrasts with retail stores that break down pallets and stock individual products on shelves. Most products have an 8% to 10% markup, while the Kirkland Signature brand products have a 15% markup. The company runs very lean, with overhead costs at about 10% of revenue and profit margins at 2%. It has no public relations department and does not buy outside advertising.
Costco's membership comprises a large, loyal, and affluent constituency, with an average annual household income of $156,000 a year. Costco stores are only open to members and their guests, except for purchases of gasoline and liquor in some U.S. states because of state law, optical prescriptions and prescription drugs because of federal law, and (in some regions) purchases made with Costco Cash Cards. While Costco welcomes guests to accompany members, only members are authorized to pay for items (unless the guests have Costco Cash cards). Memberships purchases are paid in advance for one year.In Australia, as of July 2009, membership is A$55 a year for a business membership, or A$60 a year for a Gold Star membership.
In Canada, as of May 2013, membership is C$55 a year for a Gold Star membership and includes a card for a spouse, or CDN $110 a year for an Executive membership.
In Mexico, as of December 2015, membership is Mex$450 a year for a Gold Star membership, or Mex$1000 a year for an Executive membership. Costco is only open to members for all services and purchases. At Mexican locations, only purchases made with cash, the Mexican Costco credit card, MasterCard, or Visa debit cards are charged cash prices; purchases made with AMEX, MasterCard, and Visa credit cards incur a surcharge of 2%, and purchases made with a check incur a surcharge of 1.85%.
In Spain, as of April 2015, membership is €30 plus VAT a year for a Gold Star membership, which includes an additional card for no charge, or €25 plus VAT a year for a Business membership, which also includes an additional card for free.
In the United Kingdom, as of July 2015, membership is restricted to certain groups only. Trade membership is available to the owners or managers of businesses for £20 (plus VAT). Trade members receive a complimentary spouse/partner card, and can purchase additional cards (at a cost of £12+VAT each) for employees. Qualified professionals, such as accountants, architects, dentists, doctors, engineers, opticians, pharmacists, surveyors, magistrates and solicitors, as well as employees in certain specific sectors (such as airlines, banking, the civil service, education, local government and medical services) may apply for individual membership, which costs £25 including a spouse/partner card. While these restrictions are posted in the store they are not applied rigorously; in reality any individual may apply for, and receive, a membership card. A Costco card issued in another country is valid in the U.K., and as such, it would be possible for a U.K. resident to sign up elsewhere and use their card at home without meeting U.K. membership requirements.
In the U.S., as of May 2015, membership fees at Costco are US$55 per year for a Gold Star (individual) or Business membership, which can be upgraded to an Executive membership for an additional US$55 per year. All memberships include, free of charge, an additional card for a household member, an option to buy more cards for other members associated with the primary account holder, and additional benefits for Executive memberships, e.g., check printing services, home loans, some travel benefits, and vehicle insurance. Executive members also receive an annual "2% Rewards Check" of up to US$750 from Costco on all purchases made, excluding select items such as gasoline, stamps, tobacco, and in some states, alcohol.
Costco Cash Cards can be purchased in the warehouse or online, and members can load them with money to make non-cash purchases at all Costco warehouses in Australia and the United States. Because Costco gas stations take only Visa credit cards (United States locations only), Costco Cash, debit cards, and MasterCard (Canadian locations only), people who can only pay for gas by check or cash must purchase a Costco Cash Card before filling up.
A Costco membership is not required to make purchases with a Costco Cash Card. A non-member may not purchase or re-load a Costco Cash Card; however, they may spend more than the total value of their cash card in-store provided they pay in cash or approved debit cards for the remaining balance.
Online, Costco.com accepts Discover Card, MasterCard, PayPal Credit, and Visa cards.
At Costco stores and gas stations, until June 19, 2016, American Express was the only accepted credit card in Japan, the United Kingdom, and the United States, because Amex charged Costco very low interchange fees (a percentage of revenue from total sales made); as Costco's margins are low in comparison to other retailers'. Other forms of payment accepted at Canadian, United Kingdom, and United States Costco locations included cash, Costco Cash Cards, Costco credit cards, checks, EBT cards (food stamps), and PIN-based debit cards (Interac in Canada). Costco also accepts Flexible spending account (FSA) debit cards for qualifying purchases at the optical and pharmacy departments in the U.S.
On February 12, 2015, it was announced that the 16-year partnership between American Express and Costco was to end after June 19, 2016. As of June 20, Costco no longer accepted American Express credit cards, and cardholders of TrueEarnings Costco-American Express cards were no longer able to use them anywhere after June 19, 2016. American Express mentioned that it and Costco had failed to reach an agreement that would have continued their partnership beyond June 19, 2016, the end date of their current contract.
On March 2, 2015, Costco announced that Citigroup Inc. would become the exclusive issuer of Costco's credit cards and that Visa Inc. would replace American Express as the credit-card network for Costco’s stores starting on June 20, 2016. Costco accepts other Visa cards under the new agreement, as well.
AmEx has been sued by shareholder Plumbers and Steamfitters Local 137 Pension Fund lead for failing to reveal the expected financial impact on its firm of the loss of Costco business, which is expected to be substantial. The Costco partnership represented 8%, or $80 billion, of AmEx's billed business and about 20%, or about $14 billion, of its interest-bearing credit portfolio, according to Richard Shane of JP Morgan Chase & Co.
The impact of this change on consumers will be significant, because Costco was one of the few large-scale retailers that only accepted American Express and not Discover Card, MasterCard, or Visa credit cards, although Costco did accept MasterCard and Visa debit cards. The TrueEarnings Costco-American Express card did not have an annual fee and offers cash back on certain tiers of purchases; to retain TrueEarnings members and attract new American Express customers, AmEx was offering a deal which includes zero percent interest for six months, followed by a variable rate at 15.24%.
Until 2009, Costco did not accept food stamps. As of March 14, 2009, an article in the Pittsburgh Post-Gazette quoted Jim Sinegal, co-founder and president of the company, as saying, "Generally we don't have customers who use food stamps."
In response to the poor economy, as well as competitor BJ's Wholesale Club's decision in April 2009 to accept electronic food stamp benefits chainwide, Costco announced in May that year that it would accept food stamps on a trial basis in two New York City stores, starting in June 2009, and depending on its success, might expand it to all New York City stores. The company subsequently announced plans to expand the program beyond New York City, targeting first the "hard-hit areas like the "Central Valley of California", Indiana, and Michigan, expanding to "half its roughly 410 U.S. stores by Thanksgiving", and then going nationwide.
Costco memberships can be refunded in full at any time before they expire. Costco guarantees almost all of their products with a full refund. Exceptions include cameras, camcorders, cellular phones, computers, digital audio players, projectors, and televisions; these may be returned within 90 days of purchase for a refund, for any reason. After 90 days those returns must be done through the manufacturer according to the terms of the warranty. Also exempted are tires (which are covered by their manufacturer's separate defects and treadwear warranties) and batteries (which are covered by a 36/100-month warranty, where they may be replaced for free in the first 30 months and are covered under a pro-rated warranty for months 31-85). Costco has negotiated with manufacturers to extend the manufacturer's warranty to two years for new computers and televisions (five years on televisions sold by Costco in the UK).
Costco has a wide variety of changing inventory and is known for carrying products for a time, then discontinuing them or using them as seasonal products. Over the years, Costco has gradually expanded its range of products and services. Initially, it preferred to sell only boxed products that could be dispensed by simply tearing the stretch wrap off a pallet. It now sells many other products that are more difficult to handle, such as art, books, caskets, clothing, computer software, fine wine, furniture home appliances, home electronics, hot tubs, jewelry, perishable items (such as dairy, fresh baked goods, flowers, fresh produce, meat, seafood), solar panels, tires, and vacuums. Many warehouses also have gas stations, pharmacies, hearing aid centers, optometrists, photo processors, and tire garages.
Some locations have liquor stores, often kept separate from the main warehouse in order to comply with liquor license restrictions. In some states (such as Texas), the liquor store must be owned and operated by a separate company with separate employees. In 2006, Costco lost a lawsuit against the state of Washington in which it was seeking to purchase wine directly from the producer, bypassing the state retail monopoly. In Australia, Costco has to comply with regulations set by each state they choose trade in; their first store in the state of Victoria benefits from some of the most liberal alcohol licensing laws in the country, with retailers permitted to sell alcohol on shelves within the store, in a manner similar to most European countries. In the Canadian province of Quebec, beer and wine are sold within the stores from pallets.
"Kirkland Signature" is Costco's private label. It is sold by Costco at their website and warehouses, and is trademarked by the company. The name is derived from the location (from 1987 to 1996) of Costco's corporate headquarters, Kirkland, Washington.
Costco introduced Kirkland Signature as its private label in 1992. The idea was to identify categories in which a private label product could provide brand name quality at discounted prices. To counteract the consumer confidence problem common in store branding, Kirkland Signature occasionally employs co-branding. According to Costco, while consumers may be wary of same-store-branding, they are less likely to be wary of brands that they are familiar with and trust.
The Costco Connection is a magazine sent free to members of Costco; it can also be accessed online by anyone, free of charge. The magazine, established in 1987, features articles which regularly tie into the corporation along with business, celebrity features, cooking, entertaining, health, home improvement, and social articles, as well as coupons and ads. MediaPost reports: "While about 90% of the magazine’s advertising is co-op, increasingly national advertisers such as Procter & Gamble are buying space, notes Roeglin -- presumably because of the pub’s gargantuan reach and the data it has on its subscribers (whose average household income is $156,000 a year). 'We see about 56% of our subscribers a month buy something at one of our stores based on something they've read in the magazine,' says Roeglin." The magazine is the largest-circulation print monthly in the United States. Costco also publishes the Costco Household Almanac and a cookbook series.
Costco offers a free "concierge" service to members who purchase electronics, to help answer questions regarding setup and use and avoid potential returns due to not understanding how to use the products.
Costco acts as an investment broker and travel agent. Costco has an agreement with Ameriprise for auto and home insurance. In 2004 Costco offered an original artwork by artist Pablo Picasso on their online store; more recently a highly regarded 1982 Mouton Rothschild wine was offered as well as other rare wines in rotation.
Costco Photo Center is a multi-functional photography printing lab offering services at the warehouses as well as through their web site, costcophotocenter.com. The website provides free unlimited digital file storage with a current membership. Previous to May or June 2010, Costco had an agreement with Mypublisher.com for custom book and calendar publishing. Now, they print the photobooks and calendars themselves.
As of September 2015, Costco is the second largest auto seller in the US, just behind AutoNation. Costco regularly teams up with various automobile manufacturers to offer special deals to customers, e.g., Polaris (a leading seller of powersport vehicles) in 4Q2015 and General Motors from October 2015 through January 2016. Addicted to Costco lists the following as some benefits of the Costco Auto Program:A low, prearranged price for Costco members
All available national manufacturer incentives
An easy, hassle-free experience at more than 3,000 hand-selected dealerships nationwide
Dealerships that understand the program and their processes, and feature specially trained and certified Authorized Contacts to assist Costco members
On March 9, 2005, NOVA Information Systems (NOVA) partnered with Costco to market and support payment processing services to Costco Canada's Business Executive Members.
Costco Optical ranks as the fifth-largest optical company in the US, as of 2015. Optometrists working at Costco locations will see patients without Costco memberships, although a membership is required to fill a prescription at the optical department.
Costco Travel is a wholly owned subsidiary of Costco Wholesale and offers leisure travel to Costco members of the United States and Canada. The program was established in 2000 as a service to Costco members. Costco Travel's offices are located in Issaquah, Washington, adjacent to Costco's corporate headquarters. Costco Travel employs over 700 travel professionals, all of them Costco employees.
The program offers vacation packages to the Caribbean, Europe, Florida, Hawaii, Las Vegas, Mexico, and the South Pacific. Other products include car rentals, cruises, guided vacations, and theme park packages. Select products feature additional benefits for Costco Executive Members.
The program is marketed directly to Costco members through various Costco avenues, including the Travel Guide to Savings (found in all U.S. Costco warehouses) and in the Travel section of Costco.com.
All but a few Costco locations have a food court. Some are inside, some are outside, but the menu is essentially the same: hot dog with drink, pizza, frozen yogurt, various drinks, baked items, and sandwiches. Costco offers a quarter-pound 100% beef hot dog or Polish sausage and 591 millilitres (20.8 imp fl oz; 20.0 US fl oz) drink (with refills) for US$1.50, the same price since 1985. In Australia, the hot dog is made of pork and is sold with a large soda for AUD$1.99. In Canada, the price for a hot dog and soda with refills is C$1.50. In Mexico, the hot dog is made of 100% beef and includes a drink (with refills) for Mex$30. In the UK, the hot dog is also made from beef and customers also get a drink (with refills) for £1.50. Costco sold more than 82 million quarter-pound (113 g) hot dogs in its food courts in 2008.
Cheese, pepperoni, veggie, or combo pizza is also available in most locations, and can usually be ordered to go, making Costco arguably the 14th largest pizza chain in the US in 2010. Frozen yogurt is also served in chocolate, vanilla, or swirl. Costco also offers berry smoothies, latte freeze (without chocolate), mocha freeze (with chocolate), beef bake, chicken bake, bulgogi bake, turkey provolone sandwiches, twisted churros, chicken Caesar salads, and in some locations, gelato. French fries are also offered in some locations. The nutrition data for the Costco Food Court items is posted online.
Due to slow sales, in 2009 the pretzel was replaced by the churro. In April 2013, Pepsi replaced all Coca-Cola fountain drinks at US locations, but the hot dog combo with soda still costs US$1.50.
In December 2005, Costco signed an agreement with PhotoChannel Networks Inc., whereby Costco could deploy the PNI Digital Media Platform to offer online photo printing for Costco members through the website.
On July 17, 2015 Costco disabled their online photo site. In common with other retailers, there is currently no confirmation about whether hackers had stolen Costco customers' photographs or data. As of August 1, 2015, Costco was estimating the website might return in mid August, after a four-week outage.
On April 17, 2001, Costco Wholesale opened a B2B (Business to Business) online shopping site at costco.com for faster and easier business shopping.
The domain costco.com attracted at least 58 million visitors in 2008, according to a Compete.com survey. Costco.com is for United States members; costco.ca is for Canadian members, and other countries, such as Mexico, South Korea, and the UK, each has its own online Costco shopping website.
In 2010, Mercy for Animals conducted an undercover investigation at Buckeye Veal Farm, a veal supplier to Costco. Immediately following the investigative release, Costco adopted a policy against purchasing veal from producers that use the crate-and-chain production method. The case prompted Ohio decision-makers to vote in favor of a veal crate phase-out in the state.
In 2012, Mercy for Animals conducted an undercover investigation at a pork supplier to Costco, Walmart, Safeway, Kroger, and Kmart. Before the public release of the investigation, Costco announced they would begin requiring their pork suppliers to phase out gestation crates.
In 2015, The Humane Society of the United States conducted an undercover investigation at an egg supplier to Costco. An undercover worker at Hillandale Farms, a major egg supplier to Costco, filmed conditions in which egg-laying hens lived in tiny, wire cages. Following the investigations, several celebrities including Brad Pitt and Ryan Gosling publicly wrote to Costco to address this issue. Following efforts by animal protection nonprofits include The Humane League, Costco released an updated commitment to source exclusively cage-free eggs in its operations.
In 2016, a follow up to Costco's shift to cage-free eggs by animal rights group Direct Action Everywhere (DxE) reported cannibalism and high mortality at a cage-free Costco egg supplier. Costco denied the allegations, but the video sparked a discussion about animal welfare problems continuing to exist at cage-free egg farms. Writing in the Huffington Post, DxE co-founder Wayne Hsiung argued that the new investigation, rather than suggesting that Costco should keep birds in cages, indicated that hens should have the right not to be raised for food or kept on farms at all.
While some former Price Club locations in California and the northeastern United States are staffed by Teamsters, the majority of Costco locations are not unionized although there seems to be a move in 2012 to unionize some locations in Canada. The non-union locations have revisions to their Costco Employee Agreement every three years concurrent with union contract ratifications in locations with collective bargaining agreements. The Employee Agreement sets forth such things as benefits, compensations, wages, disciplinary procedures, paid holidays, bonuses, and seniority. The Employee Agreement is subject to change by Costco at any time and offers no absolute protection to the workers. As of March 2011, non-supervisory hourly wages ranged from $11.00 to $21.00 in the U.S., $11.00 to $22.15 in Canada, and £8.50 to £11.50 in the United Kingdom. In the U.S. as of 2005, eighty-five percent of Costco's workers had health insurance, compared with less than fifty percent at Walmart and Target.
Product-demonstration (e.g., food samples) employees work for an outside company. In the western U.S., the company is called Warehouse Demo Services, Kirkland, Washington. Costco also uses Club Demonstration Services, based in San Diego, California. In Canada, demonstrations are done exclusively by Professional Warehouse Demonstrations. Demonstration employees receive a pay and benefit package that is less than that of Costco employees.
In 2014, The Guardian reported that Costco is a client of Charoen Pokphand Foods. Over six months, The Guardian traced down a supply chain from slave ships in Asian waters to leading producers and retailers. Costco has published a statement saying it has had a supplier code of conduct since 1999 which does not allow this practice, and that independent auditors check for violations regularly.
Warehouses outside the US are similar to those in the US. Layout, signage, and even parking lot markings are generally identical to warehouses in the US. Food court menus are tailored to international tastes, with meat pies on offer in Australia, poutine in Canada, seafood-topped pizza in Asian and Mexican locations, clam chowder in Japan, South Korea, and Taiwan, and jacket potatoes in the UK. Additionally, Costco has led a strategic initiative within the past year to enhance their merchandise mix available within international warehouses to tailor products to local tastes, with a mix of both American and local products available.
Costco announced it was opening 28 new locations in 2013, the most in one year since 2007.
In 2005, the world's largest Costco was located in Hillsboro, Oregon. In 2015, Costco completed an expansion in Salt Lake City, UT, making it the new largest Costco at 235,000 square feet. In 2011, Costco's highest volume store was in Seoul, South Korea.
Costco Business Centers are warehouses similar to regular Costco warehouses, and are open to all Costco members, regardless of membership type. Their merchandise, though, cater predominantly to enterprises, with a focus on small businesses. Business Centers do not carry most consumer items like clothing, jewelry, media, and tires, while carrying larger quantities and more options for the business products they do carry. They do not offer most of the consumer-oriented services found at regular Costco warehouses, but some locations do have a food court or a gas station or both. Also unlike regular warehouses, Costco Business Centers have a Print & Copy Center which provides printing professional services. They have large parking spaces for trucks and are capable of delivering goods to businesses in bulk quantities. Finally, opening hours are shorter than regular warehouses (usually opening at 7 am on Mondays to Saturdays and closed on Sundays), while discounts and coupons for Business Centers are issued separately from regular warehouses.
As of August 2016, there are 15 Costco Business Centers in the United States, located in Orlando, Florida; Phoenix, Arizona; California (Commerce, Hawthorne, Hayward, San Diego, and Westminster); Denver, Colorado; Morrow, Georgia; Bedford Park, Illinois; Hackensack, New Jersey; Las Vegas, Nevada; and Washington (Lynnwood, and Fife).
The first Costco Business Center in Canada and anywhere outside the US (spelled as "Costco Business Centre") will open in Scarborough, Ontario (part of Toronto) in spring 2017.
The first Costco Home warehouse debuted in 2002 in Kirkland, Washington. The warehouse's concept was to combine the value, setting and members-only elements of Costco's warehouse clubs with the product array one would find at an upscale home store, such as Fortunoff or Crate & Barrel. The Costco Home warehouses sold furniture, housewares, kitchen products and accessories from higher-end brands such as Lexington, Ralph Lauren and Waterford in a warehouse-club setting. Costco claimed that, similar to its main warehouses, it accepted lower margins in return for greater volume with minimal overhead.
Over time, the concept was adjusted to include home electronics, some major appliances, office furniture, and a large selection of outdoor furniture and window treatments. Costco also partners with Glentel subsidiary WIRELESS etc. to sell mobile phones and plans in Canada and Wireless Advocates in the US.
On April 2, 2009, the company announced that it would be abandoning its Costco Home concept, closing the two existing stores in Kirkland, Washington and Tempe, Arizona on July 3, 2009, and abandoning plans for a third store on the West Coast. The company cited cutbacks in consumer spending on home products and its interest in focusing on its core business as the main reasons.