Costco, the warehouse club giant, has carved itself a niche in the retail world. Beyond the aisles of bulk paper towels and mountains of clothing lies a carefully crafted business model prioritizing member satisfaction and cost savings.

A Strong Opening to 2024

In its first-quarter earnings call, the retailer shared some promising news, a reaffirmation that embracing digital sales has significantly contributed to an impressive 18% year-over-year growth, bolstered by improving logistics, record deliveries, and app upgrades. Despite initial reservations about investing in technology, Costco has committed to staying ahead in the digital game by adding Apple Pay, expanding its online listings, and providing real-time updates for its warehouse inventory, all for the benefit of its members. Costco is also piloting membership card scanners to verify identity. However, with competitors like Sam’s Club developing AI-powered “shop and scan” technology, Costco must continue to innovate, particularly regarding checkout efficiency.

Annual membership fees provide a steady income stream, allowing Costco to negotiate better deals with suppliers and pass on those savings to their constituents. Memberships are everything to Costco’s profit-based model, which thrives on consistent membership retention and new signups, which are the company’s crucial revenue sources. Analysts speculate that with a high renewal rate of 92.9%, Costco may consider raising membership fees in the foreseeable future. From a warehouse perspective, they do everything possible to minimize costs and pass the savings on to the customer as a value proposition.

A Global Phenomenon

Costco’s global appeal is undeniable, and its international expansion is a testament to its success. The company’s rapid expansion, with new branches opening annually, has propelled it to become a top revenue-generating retailer worldwide. Costco is extending its global reach with 876 retail locations, 68% of which are in the United States and Puerto Rico, and e-commerce sites in the U.S., Canada, and eight other countries. Its latest opening in China’s Shenzhen District, the sixth in the country, clearly indicates its global ambitions. Another branch in Jiangning, China, is scheduled to open this summer.

Closer to home, Costco is opening seven new stores over the next three months, including its second-largest location in Fresno, California. The 219,000-square-foot warehouse will house a 32-pump gas station, a new car wash and parking lot, and a dedicated food delivery service. Yes, you read that right: Costco is ramping up its expansion of its CostcoGrocery business after success with the Instacart partnership. The proprietary service offers two-day delivery on shelf-stable products ordered through its website.

Costco is innovating with new store concepts. They’re testing “touch and feel” stores in the U.S. and Puerto Rico, with dedicated showrooms for appliances and furniture in select locations. These showrooms will let members try out products before ordering online for home delivery, complementing their 2024 expansion plan of opening 33 new locations in the coming year.

Membership with an Edge

With its staggering 130 million subscribers worldwide, Costco remains steadfast in its mission to offer quality goods and services at the most competitive prices. Despite the economic upheavals of the Great Recession, the housing crisis, the pandemic, and recent spikes in inflation, Costco has maintained the price of its iconic food court hot dog at just $1.50, unchanged since 1985, underscoring its commitment to affordability and bolstering customer loyalty.

Costco retains first place among retailers in customer service satisfaction and invests heavily in its warehouses and employees, creating a shopping experience that fosters loyalty and repeat business. Its unique ‘treasure hunt’ approach has endeared the brand to ardent supporters who passionately discuss and defend the in-store experience on platforms like Reddit and social media. Cultivating an environment of open communication among its members has been a hallmark of its success, with one fan on Reddit claiming it as “The best store in America.”