Costco Wholesale Corporation operates a chain of membership warehouses that sell a wide range of merchandise, including fresh foods, household goods, electronics, and apparel. Costco manages 529 warehouses throughout the US and 8 other international markets, which include Japan and the UK. Since Costco's founding in 1983, Costco has become a multi-billion dollar corporation. For the third quarter of Costco's FY2008, Costco saw a 13% year over year increase in net sales, driven by rising gas prices and higher sales of food items.[1] However, after considering the inflationary component in increased gasoline and food item sales, Costco's normalized net sales growth is closer to 8%.
Costco's customer membership business model is relatively unique in the industry, designed to reinforce customer loyalty and provide a continuing source of membership fee revenue. Their stated purpose for employing this model is to leverage its membership revenue to offer lower prices.
Costco's high expenses are problematic to Costco's overall profits. Costco has been trying to decrease expenses in order to gain a larger profit margin by making changes within company structure, such as employee costs. Another factor that Costco must be aware of is customer loyalty. Costco's business model is built upon customer membership, who join and renew annually. This directly monetizes customer loyalty as unsatisfied members may not renew and represents a real cost to Costco's business.
Costco has already begun expanding its warehouse empire across the U.S., which has allowed it to gain the majority of the market share from the competition. In the first three quarters of FY2008, Costco opened 18 new warehouse locations around the world, not including four re-locations.[2] With respect ...