Since then,
Costco has evolved to where small businesses make up
just one-third of its 41 million members (though they still account
for 60 percent of its sales). Costco stores still sell plenty of
office supplies, but they also sell diamond rings, gasoline,
300-capsule bottles of fish oil, computer
flash memory cards, the
latest Harry Potter book, and fresh beef, chicken, and produce -
and, of course, the ubiquitous bundles of toilet paper.
Today, Costco has more than 400 locations in the United States,
Mexico,
Europe, and
Asia, with sales of almost $40 billion in 2003.
That compares to an estimated $31 billion for Sam's Club. More
impressively, the typical Costco has twice the revenue as a Sam's
Club, yet carries fewer items. And its membership renewal rate is
86 percent, so high that the business press describes Costco's
annual membership fees as an annuity. Best yet, the average Costco
shopper visits the stores more often than ever, from once every
five or six weeks in 2002 to once every two or three weeks in 2003.
And more visits equal more dollars.
THE VALUE EQUATION
Customers don't wheel their carts into Costco every 17 days to buy
products that manufacturers are unwilling to claim. There are no
black marks across clothing tags here. "When people used to think
of warehouse clubs, they thought something had to be wrong with the
merchandise, because it was cheaper," says Costco CFO Richard
Galanti, who then makes his point by taking off his shoe, bought at
Costco, to demonstrate its quality craftsmanship. "It had to be a
second or a closeout or a discontinued item. Well, we had to find a
way to allay those fears and reassure our customers that they were
getting great prices on great items."