We know Costco charges membership dues and sells goods off pallets on concrete floors under cheap lighting. We know the portions are large – mayonnaise in containers big enough to satisfy even the Ohioans in Martin Mull’s 1985 mockumentary The History of White People in America. And we assume all of this means the prices are low. According to CNBC’s The Costco Craze: Inside the Warehouse Giant – premiering Thursday, April 26 at 9 p.m. ET – they are. Buy in bulk, sell low, make profit through volume. End of story?
More like beginning of story. The typical Costco shopper is relatively affluent – earning about twice the average per capita – and well educated. And he or she buys a lot more per visit than the typical supermarket shopper. The show’s talking heads explain that Costco aggressively encourages impulse buying by, among other things, posting few signs throughout the warehouses. You wander, you buy.
Shoppers roll out of Costco in a minivan full of stuff heavier and hundreds of bucks lighter because of the variety. They aren’t just buying food, they’re snapping up clothes and drugs and electronics and furniture and vacation packages. The irony is, one of Costco’s shrewdest marketing strategies is LIMITED brand selection.
The typical supermarket, even selling mostly food, offers some 40,000 distinct products, and Walmart sells about 100,000. Costco stocks only 4,000. Without all that pesky choice, we buy more. Life is short. Who wants to ponder 57 varieties of ketchup when Costco conveniently offers one or two?
Like Walmart, Costco exerts enormous power over suppliers, and is itself a major producer and rebrander, with its private label, Kirkland. It is the biggest retailer of meat and toilet paper in America, probably the biggest wine seller in the world. What is more surprising is that much of that wine is high-end, and the program devotes an intriguing segment to Costco’s novice yet globally powerful chief wine buyer, Annette Alvarez-Peters.
There are some reasons to feel good about shopping at Costco, which hasn’t embraced Walmart’s ruthless employee policies. Unlike Walmart, Costco pays higher than industry average wages. Most of its employees also have health insurance, in spite of its similar obsession with low costs. Of course, small independent retailers are hardly fans of Costco any more than they are of Walmart or Sam’s Club, BJ’s or Target. How much does Costco rely on foreign suppliers? The program is silent on the issue.
The Costco Craze introduces us to the company’s indefatigable 75-year-old co-founder and CEO Jim Sinegal. Sure, he has a jet, but that’s so he can fly around 200 days a year visiting the warehouses. Even with the jet, he’s the perfect antidote to the fat cats of Wall Street.
In claiming that Costco’s formula is revolutionary, The Costco Craze is historically ignorant. Most notably, America’s original supermarkets offered rustic fixtures, sold all manner of goods and relied heavily on impulse buying. Some called themselves food "warehouses." This was because they were founded during the early years of the Great Depression; their owners were scrimping on fixtures and firing clerks. Lo and behold, penny-pinching shoppers, left to their own devices, bought more per visit.
Costco (like its chief competitor, Sam's Club) was founded in 1983 – well before the onset of the Great Recession – and has thrived since. When economic recovery eventually arrives, some bargain retailers will be tempted to move upscale toward nicer digs and fatter profit margins. That's what the early supermarkets did, as well as discount retailers in many other markets.
If and when they do, new low-end, low-margin firms will step in to serve the bargain hunters. This is known in the biz as the Wheel of Retailing. Every generation will have its Costcos – whether Costco continues to be one of them or not.