Many people shop at Costco
because they want good value on the more than 3,700 items in stock. Yet
few people know just how Costco is able to give its customers such
quality and value, or what makes Costco different from other wholesale
companies. We spoke with regular Costco shoppers -- or members, as the
company calls them -- as well as with Costco executives and retail
analysts to get the inside story on what attracts 72 million Costco
members and $103 billion in sales per year.
Here are seven things you should know about the warehouse store:
If you want brand names for less, you'll find them here. Costco
is a source for brand-name merchandise but the store doesn't tell you
which designer brands they carry because brands vary and the designers
don't want that information revealed. "We sell high-end items at a great
value or at a great price," says Jeff Elliott, assistant vice
president, finance and investor relations for Costco. "We're not a
fashion retailer. We're a general merchandise retailer, generally
basics. It could be the latest merchandise but we're in the basics
business." Apparel is a risky category, he adds, so fashion is not
Costco's focus. That doesn't mean you can't find better brands of winter
boots, for example, or leather jackets.
When you go abroad, you can still shop. Costco
warehouses are located in the U.S., Canada, Mexico, the U.K., Korea,
Japan, Taiwan and Australia. The company plans to open in Spain in the
spring of 2014. Merchandise varies regionally. "We have buying offices
in each region," Elliott says. For example, if there is a salsa
manufacturer in a particular place, Costco aims to carry that item for
that region, he says.
Quality at the lowest possible price means value. Costco
aims to sell quality merchandise at the lowest possible price, and "we
call that value," Elliott says. "The way we do that is we buy in bulk
and keep overhead low." In the marketplace, food items, for example, are
typically marked up 20 to 30 percent, Elliott explains. "On average,
our typical markup is 10 percent." The way Costco marks up less than
others is because they have lower overhead using the warehouse model to
sell their goods from the shipping pallets rather than unloading items,
opening boxes and stacking items on shelves. "We drop a pallet on the
floor," Elliott says, and it's typically a concrete floor. "The whole
concept is based on volume. The more volume we can do the more we can
save our customers."
If you buy an item by mistake, you can bring it back for a cash refund. Costco
ranks number one among stores with the best return policies, according
to the website, gobankingrates.com, which ranked stores in December 2013
for return policies just after the holidays. Second was Nordstrom and
third was Zappos. Costco member Joan Silver of Fairfax, Va., described
how she was able to return a case of yogurt to Costco within days of
purchasing it because it was not the kind she had intended to buy. She
said she also has returned jeans that didn't wear well.
"We know
who you are if you're a member of Costco," Elliott says. If Costco has a
recall on any of its merchandise, someone from the store can call
customers who purchased the item. "We can just look it up," he says.
Refunds are made in cash or back to the customer's American Express
credit card, which is the only type of credit card that Costco accepts.
(It also accept cash, checks and debit cards.). "Whatever the customer
wants is what we want to do," Elliott says.
[See: 13 Money Tips for Married Couples.]
Kirkland is made for Costco.
Twenty percent of all the items in a Costco warehouse are sold under
the name Kirkland. All kinds of manufacturers make these products for
Costco. Kirkland items range from two loaves of bread separately
packaged and then packaged together in a plastic bag to a package of
three pounds of raw almonds.
Food is key. "Food
is your traffic driver," Elliott says. Typically, shoppers head to
Costco for basic food items, then walk by the apparel area, and see a
designer brand shirt for $29.99 that sells in other stores for $59.99,
or they browse in electronics and find a TV that usually costs $2,400
for $1,900. From fresh and packaged foods, sundries, electronics,
sporting goods, hardware and automobiles to apparel, luggage,
housewares, linens, and travel, Costco sells most product lines
including items like high-end jewelry, men's suits and cosmetics.
[See: The 10 Most Dangerous Products to Kids.]
Hot dog and soda is a winning combination.
Costco sells 109 million hot dog and soda pop combinations worldwide
per year at $1.50 for the combination of the two items. The details:
Each hot dog is more than 1/4 pound and the hot dog and soda pop
combination have been sold in all Costco locations since its founding in
1983.
The 72 million members
of Costco attest to the popularity of the international wholesale
store. Whatever you need, Costco aims to have it at good value - quality
at the lowest price. Sometimes they carry special items for a certain
period of time. "It creates what we call the treasure hunt," Elliott
says.
