Prioritizing the interests of its customers has garnered Costco millions of loyal members. However, Costco does not cut prices at the expense of quality and profitability to gain market share, but through cost optimization and economies of scale, passing down savings to their members in the form of lower prices. The business thrives on selling products that are cheaper than what you can find anywhere else. Source: Costco annual reports Economic moatĬostco is the cost leader of its industry. The wholesaler has also gone from a lonely warehouse down in Seattle in 1983 to 803 locations worldwide. Overall, Costco’s revenue, including the sale of merchandise, has more than doubled from US$78.0 billion in 2010 to US$166.8 billion in 2020. Because, come on… how much could it cost to run a membership scheme? Although Costco’s membership fee revenue of US$3.5 billion pales in comparison to merchandise revenue of US$163.3 billion, most of it flows down to Costco’s operating income of US$5.4 billion. and Canada, and 85% worldwide, giving Costco a steady source of recurring revenue. Renewal rates are consistently above 89% in the U.S. Over the past decade, the number of paid memberships has grown from 31.6 million to 58.1 million. In 2020, Costco had a total of 58.1 million paid members and 105.5 million cardholders. They have two tiers of membership – a basic and executive plan for consumers/businesses, which cost $60 and $120 respectively.Įach member is entitled to issue a free supplementary card to a member living in the same household or to a fellow staff working in the same company. To gain access to deals in Costco’s 140,000-square foot warehouses, you will need to purchase an annual Costco membership. They also sell everything from apparels, electronics, furniture, jewelry, optical glasses, gas for your car - you name it, they got it. Snickers are sold in boxes instead of bars that you find at normal grocery stores. You can get items in bulk at rock bottom prices. Business modelĬostco Wholesale operates membership warehouses. So, what makes Costco such a compelling investment that such an astute investor like Charlie Munger would invest in it? Let’s look at the company’s business model to understand Costco further. He believes diversification is for investors who do not know anything about the stock market. In a Daily Journal annual meeting in 2017, Munger said that he’s comfortable with having a concentrated portfolio. In fact, Costco features in Charlie Munger’s portfolio of just three stocks.
0 Comments
Leave a Reply. |