13 reasons Costco makes a lot of money
In the US, Costco is a chain of enormous warehouse stores. It is featured in the movie Idiocracy and there are many YouTube videos about shopping there. Ours is packed every day. This is how large they are and there are thousands of them all over the US.
1. The membership program causes you to have an up front costs. You need to shop there in order to break even.
This helps create extreme loyalty and create habits.
2. Packaging things in unusual combinations so that is difficult to directly compare to other stores.
For example, you can buy a case of 18 yogurts or a 2 lb bag of Macadamia nuts. It is challenging to directly compare to other stores, so you assume it is a bargain. It usually is.
3. Some unique product offerings that are only available at Costco
Some manufacturers make products only available at Costco, like a particular color of popcorn popper, etc.
4. Availability of large and unusual cuts of meat
You can buy entire briskets (+/- 40 lbs) or beef ribs. Good for small restaurants or the home enthusiast. Because it is hard to find these items anywhere else, if you want one, you will go to Costco and do the rest of your shopping while you are there.
5. Large quantity packaging increases the cart size.
Cart size is an essential idea in retail. Whether they buy something for five dollars or buy something for $500 the additional cost of servicing the $500 order is fairly tiny. Everything around the customer experience, like having a cashier or keeping the lights on, is the same.
6. Not providing bags
The entire ecosystem of bags does not exist. They don’t have to buy plastic bags or racks for them or have a nationwide bag manager.
7. Cash purchasing only
Cash only means no 2% payments to the credit card companies: straight to the bottom line compared to supermarkets that take credit cards.
It also means fewer chargebacks and disputes.
8. Going to Costco for many people is an event
it takes a long time to get through the store and you almost always leave with more than you came for
9. Warehouse style
They don't need staff to constantly stock the shelves; they just put a pallet on the floor.
10. Massive sturdy carts
You can easily push 200 lbs around and this cart will not even look full.
11. Tasting sections
Vendors usually pay for placements in the store. It keeps you in the store longer and looking around and you also buy more stuff.
12. HearingAids, Eyeglasses and Auto Service
Why go anywhere else?
13. Store layout
If you want to get apples and eggs you basically have to walk through the entire store. EVERYBODY has to walk past the high-margin TVs and electronics at the entrance.