Costco focuses on selling products at low prices, often at very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Furthermore, Costco does not carry multiple brands or varieties where the item is essentially the same except when it has a house brand to sell, typically under the Kirkland Signature label. This results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product. For example, on November 16, 2009, Costco announced that it would stop selling Coca-Cola products because the soft-drink maker refused to lower its wholesale prices.[19] Costco resumed selling Coca-Cola products on December 14, 2009.[20][21] Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors.
Lighting costs are reduced on sunny days, as most Costco locations have several skylights. During the day, electronic light meters measure how much light is coming in the skylights and turn off an appropriate percentage of the interior lights. During a typical sunny day, it is very common for the center section of the warehouse to have no interior lights powered on.[22]
Most products are delivered to the warehouse on shipping pallets and these pallets are used to display products for sale on the warehouse floor. This contrasts with retail stores that break down pallets and stock individual products on shelves. Costco limits its price markup on items to 15%.[23] (from Wikipedia)
In researching this post, I talked with one of the managers at Costco who called to their purchasing department in San Diego. Unfortunately, they didn't have general stats on where they purchase from. They said that their buyers "just don't keep that information". I have to admit, I'm a little skeptical about that...I mean, what business doesn't know who they are buying from? Most stores really won't release that information, which I think needs to change. We as consumers have a right to know where our products are coming from! Until we can get that info, here are some things that I've been looking for - and found - while shopping there and researching on my own:
- Almost all of their produce is labelled well (ie: where it came from, where it was processed). There are a few produce items that just say "distributed by...", but don't say where it's originally from. I went the other day and was happily surprised that about 60% of the produce I bought was grown in the USA (the other 40% was grown in Canada or Mexico).
- Costco is seasonal! They bring in specific foods when they are high quality and readily available. Right now they have a lot of citrus, but you'll notice that will phase out as we get into spring. Their model is based on providing only high quality/high value items to their customers, so they naturally go along with a more seasonal model to accomplish that goal. I'm sure this is why I have found a higher percentage of their produce to be grown in the USA.
- Many of their products are just higher quality and less cost than what you can get elsewhere. Take Olive Oil for example:
Costco’s Kirkland Signature Organic Extra Virgin Olive Oil may be the best-kept secret in the store. At $9.99 for 1.5 liters, it is roughly half the cost of the well-known Bertolli brand, and yet, according to at least one independent study, it’s much better. In a recent comparison of 19 olive oils on the market, The Olive Center, a research group at the University of California-Davis, found that Kirkland Organic was one of only five in the study not mixed with cheaper refined olive oil that can spoil the taste. The other four at the top of the list were all high-end brands that cost as much as five times Costco’s. (link to original article)
Here is the original olive oil study
Another example would be eye glasses. My husband wrote a great post about this recently: http://costcoeyeexam.wordpress.com/2012/11/15/costcoglasses/. He also has a link to price comparisons. Again, they don't even stock the low quality options and then they keep their margins lower than other opticals.
- Costco treats their employees extremely well. From a recent article in the NY Times:
But not everyone is happy with Costco's business strategy. Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco's customers but to its workers as well.
Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."
Mr. Sinegal begs to differ. He rejects Wall Street's assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street's profit demands.
Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco's customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers' expense. "This is not altruistic," he said. "This is good business."
Pretty sure that if Wall Street is knocking on a company for being "overly generous", I can get behind that. I also love the philosophy of Costco's CEO (from that same article):
"I've been very well rewarded," said Mr. Sinegal, who is worth more than $150 million thanks to his Costco stock holdings. "I just think that if you're going to try to run an organization that's very cost-conscious, then you can't have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong."
- I believe that Costco is dedicated to making good votes with their money. When issues have come up in the past, they have always taken steps in the right direction (and have influenced policies because of it). Take animal welfare for example (from wikipedia):
In 2010, Mercy for Animals conducted an undercover investigation at Buckeye Veal Farm, a veal supplier to Costco.[50] Immediately following the investigative release, Costco adopted a policy against purchasing veal from producers that use the crate-and-chain production method.[51] The case prompted Ohio decision-makers to vote in favor of a veal crate phase-out in the state.[52]
In 2012, Mercy for Animals conducted an undercover investigation at a pork supplier to Costco, Walmart, Safeway, Kroger, and Kmart.[53] Before the public release of the investigation, Costco announced they would begin requiring their pork suppliers to phase out gestation crates.[54][55]
Currently, sustainable sea food is a hot topic and Costco has taken flack for that. Awhile ago, they were taking steps to make sure that they are being responsible (original link): Most shrimp sold in the U.S. is imported from countries in Latin America and Southeast Asia, where environmental regulations are often lax or not enforced, according to the Environmental Defense Fund, (EDF), an education and advocacy non-profit. The EDF classifies shrimp imported from these regions as "eco-worst" for the environmentally destructive ways in which they are often farmed. Greenpeace took aim at Costco's seafood sustainability practices last June with an aggressive campaign called Oh No Costco. While Costco seafood buyer Bill Mardon says his company has entered into a partnership with the World Wildlife Fund to set global standards for shrimp farming, the specific objectives are still being discussed. "Costco gets credit for starting down the road," says Tim Fitzgerald, senior policy analyst for oceans at of the EDF, "but they are still very early on." They have now officially agreed to change their seafood stocking to comply with what activists and consumers want: http://www.oh-no-costco.com/. I love how they crossed out the "no". Yay!
- They also put in a lot of work and research when it comes to their Kirkland Signature brand: http://tenayagroup.com/blog/2009/10/21/inside-costcos-kirkland-signature-brand/ and with their gasoline: http://www.costco.com/gasoline-q-and-a.html Basically every product I've researched has come up with a resounding YES! Costco is doing it right.
Obviously, just because the company itself seems to be going in the right direction, that doesn't take away your responsibility as a consumer. Keep purchasing the products that you believe in and always check labels/ingredients. Businesses absolutely respond to consumer purchases (and Costco is extremely sensitive to this. If it's not selling, it's off the shelves).
One thing to be aware of when purchasing clothing in any store is that brands create lower quality products to sell at a discounted price. Unfortunately, this DOES happen at Costco sometimes. I thought this was a good tip for determining whether it's high quality or just a knock off:
Kathryn Finney, founder of The Budget Fashionista, says it's no secret that most name designers make cheaper lines just for warehouse clubs or outlet stores. The tip-off, says Finney, will be in the packaging and/or label on the garment. Labels on the sub-brands are just glued on, and are usually stiff and crunchy, while labels on high-end goods are softer or silky, and stitched all around. (original link).
All in all, I am extremely impressed with Costco's business model and code of ethics, when compared with the other retail stores we have available (you'll see in my next posts...shudder...)
