11 Things You Probably Didn't Know About Costco
Costco has fascinated shoppers and business experts alike, to the point where analysis of the company's strategy has become something of a cottage industry. The enigmatic warehouse store doesn't follow many of the traditional rules of retail. Here are some lesser-known facts about the nation's largest wholesale club operator.
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Costco's most popular product: toilet paper. The chain sold more than 1 billion rolls worth some $400 million in 2015. In one clue to its importance, the toilet paper is often found deep in the store, so that budget-conscious customers have to pass many other tempting products on their way to stock up.
Costco doesn't label its aisles for the same reason it places popular items at the back: As customers search the store to find what they came for, they see more items they want to put in their carts. Nevertheless, it should be easier to find items in the giant warehouses than in some other stores. Costco stores usually house about 4,000 products in an open layout while the average Walmart, for example, has about 100,000 products cluttering the aisles.
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Costco keeps its rotisserie chicken and hot dogs cheap because they are loss leaders. In other words, people come for the meat and stay for the flat-screen TVs. Chicken is one of those items placed strategically toward the back of the store so customers can be entranced by other offerings as they walk by. At $1.50, the hot-dog-and-drink combo has been the same price for years. For Costco, "traffic and long-term loyalty trump reactive price hikes," according to Bloomberg.
For years Costco famously accepted only American Express from customers wanting to use credit cards, but as of June, any Visa card is welcome. Like many of the store's decisions, the split with Amex was related to cost -- Visa will take a smaller fee on card purchases and give back better rewards, as demanded by Costco. NerdWallet praises the new Costco Anywhere Visa card, including its 4 percent cash back on gas purchases.
Costco is raising its minimum wage to $13 or $13.50 an hour and pays workers up to $22.50 an hour. This leads to a level of employee retention that's rare in retail. Turnover for employees who have worked at the stores for more than a year is 5 percent or less. By cutting costs in other ways (minimal decor and no shopping bags, for example), Costco can hang on to good, productive workers. The company also tends to promote from within.
Costco's private-label products, named after the company's origins in Kirkland, Washington, cost less than brand names but generally deliver high quality. In many cases, products from big-name companies are packaged under the store's Kirkland Signature label. For instance, Costco takes premium wine from highly regarded vintners and sells it for unthinkably low prices -- which it can get away with, as the biggest retailer of alcohol in the country. Ironically, however, consumer product testing suggests that the toilet paper's popularity may not be justified. It's soft but not very strong, according to Consumer Reports.
Unlike many of its competitors, Costco doesn't advertise (although it does tout deals or send coupons to existing members), which helps keep spending low and profits high. Even without selling a thing, Costco can count on membership fees as a revenue stream and has no problem attracting enough new and returning members: 91 percent of members in the U.S. and Canada renewed last year, according to the company's 2015 annual report, and the number of memberships grew more than 6 percent.
Who would have thought Costco had its own magazine, let alone a print monthly with the largest circulation in the country? Yet Costco Connection, which is sent automatically to business and executive members, has 8.6 million domestic subscribers. Now, as other national magazines decline and close, even traditional advertisers want a place on its pages of celebrity interviews, how-tos, recipes, and, of course, coupons. Costco Connection is available online for anybody to view or download, and there is an app version for iPhone and Android.
Some of Costco's best stuff is accessible even without a membership. In some states, legal loopholes allow alcohol purchases, allowing non-members a chance to try those excellent Kirkland Signature wines. A Consumer Reports study found that Costco has the best prescription prices, and no membership is needed to use the pharmacy. If the food court is outside, you can pay cash for the famous $1.50 hot dog combo.
The sheer volume of Costco stores -- nearly 500 -- is enough to rank the store comfortably within the top 20 American pizza chains. This is another loss leader: Slices are only $2. (For those who prefer to make their own, Costco sells dedicated pizza ovens for $100 to $5,000.)