If you’re a Costco member (or frequent food court diner), you won’t believe the work that goes into keeping your favorite items affordable and readily available. It may seem effortless, but Costco has a number of tricks up its sleeve that make it one of the best places to shop, eat and work. Don’t forget the free sample!
Costco gets right what others get wrong
Unlike many of the world’s most valuable companies, Costco flouts the traditional notions of retail business. For one thing, you can’t even enter the store without a membership card (available for a yearly fee of $60). The stores are also devoid of atmosphere — appearing more as giant warehouses than shopping markets. Products are directly forklifted in pallets to their location, and the only shelves are large, metal, and bare bones. Most notably, there are employees stationed around the store that literally give away free product samples at no charge.
Engineering an experience
One of the biggest standout features of Costco is its insanely cheap prices for large quantities of goods. Where other retailers may work the numbers to mark up the prices of items, Costco does its best to reduce the impact of its own markups. According to the company’s annual results from 2018, the average markup for in-store items is only 11%, which is staggeringly low compared to traditional retailers that mark up their items up to 50%. The low markups, however, mean that Costco isn’t making as much money on merchandise as it could be. The low prices, however, are the bait to attract customers. Costco’s real moneymakers are found in annual membership fees and product selection.
Unlike other stores, by charging a membership, Costco guarantees themselves a $60 minimum for every customer that comes through its doors for the first time. That quickly adds up and doesn’t even include the additional revenue from the food court (it’s open to non-members in some locations.) Item selection is another big part of the Costco experience. Consumers often find themselves much more indecisive when presented with a large selection of items to choose from. Costco, however, stocks large amounts of one or two brands for everything in its store — helping to remove the pressures that come with decision making. The sheer volume of these exclusive items (think 60 count crates of ramen, for example) is another cost-cutting incentive for Costco shoppers. It helps save on merchandise costs while justifying the price of entry for consumers. Much like with Disneyland, everything at Costco is laid out in a specific way that’s designed to entice the customer to explore and shop. What’s more, the company doesn’t just trick people into spending money — it engineers its stores and products to be as affordable and inviting as possible. It’s to a point where investors and stockholders are often unhappy with the company’s focus on customer experience. But Costco’s survival is proof that other retailers should be taking notes.
The inside story isn’t so bad, either!
The biggest surprise to come from Costco, though, is how it treats its employees. In a world where retail turnover rates can reach as high as 65%, Costco retains some of the most dedicated employees in the business. Many employees stick around for years, sometimes decades, even! What keeps them in place compared to other retailers? As it turns out, customers aren’t the only ones in good graces with Costco. The average pay for a full-time Costco employee is around $21 an hour, which is enough for most employees to afford cars, homes, and a decent lifestyle. While it cuts into Costco’s bottom line, dedicated staff can be worth its weight in gold, and will go further to provide good experiences for customers. This, in turn, leads to more enthusiastic return visits from customers — a win/win for Costco. Plus, consistent staff with low turnover means less money spent on training and orientation. That said, there’s something special about visiting a brick-and-mortar store and touching the products you’re buying with your own hands. It allows you to be less impulsive when you choose things to buy, and for items like food, you can even taste a sample before you load it into your cart. Ultimately, comparing e-commerce to physical retail is like comparing apples and oranges. Though they may occupy the same economic space, their attributes couldn’t be more different. There’s no doubting, though, that Costco offers incentives that few other retailers do. Whether you choose to take advantage of them depends on your needs as a consumer.
