Costco's Big Secret: It Doesn't Play by the Rules

To say that Costco has a legion of fans is no exaggeration: More than 51 million people ponied up more than $3 billion in membership fees in 2018 to get access to the chain and its mega-discounts. At the Hustle, Zachary Crockett looks at what's driving the cultish devotion and why the retailer is doing so well even as consumers do more and more of their shopping online. Crockett's take: Costco has succeeded by flipping conventional business wisdom on its head and putting it customers' interests ahead of its shareholders'. That's evident in its margins: By Crockett's calculations, the average markup is 11%; 25% to 50% is what's common in retail. And the price being marked up is often lower than what consumers will find elsewhere thanks to the store's purchasing power.

What this looks like: A pound of wagyu beef that costs Costco $100 would theoretically cost a Costco shopper $111, while the same pound at a grocery store would cost $140, due to a higher markup and a higher purchase price for the grocer. As an example of just how little Costco tries to squeeze its customers, consider this anecdote: At a time when Calvin Klein jeans typically cost around $50, Costco sold them for $29—then secured a better purchasing deal. Instead of pocketing the extra profit, it dropped the price to $22. Costco will even work with vendors to redo its products and processes so as to lower the price, with the savings going to the customer rather than its bottom line. Read the full story for more, including the history of how Costco came to be and just how well it treats its employees. (Here's one unusual item Costco has sold.)