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Costco: 20 Years of Big Growth and Lower Prices

20 Sep, 2003 By: Dan Bennett

A buck fifty for a hot dog and soda?

Must be Costco.

It's been 20 years since Costco opened the doors at its first location, in Seattle. Since then, the now-international warehouse chain has grown tremendously. Its store count has grown, its store size has grown, and its product lines have grown.

The only things that haven't grown, at least not much, are the prices. Take the price of the hot dog and soda. It's the same as it was when Costco first began selling them outside its locations.

Costco is about more than a tasty lunch, though.

“Costco's warehouses present one of the largest and most exclusive product category selections to be found under a single roof,” said information provided on the company's Web site. “Categories include groceries, candy, appliances, television and media, automotive supplies, tires, toys, hardware, sporting goods, jewelry, watches, cameras, books, housewares, apparel, health and beauty aids, tobacco, furniture, office supplies and office equipment.

“Costco is known for carrying top-quality national and regional brands, with 100 percent satisfaction guaranteed, at prices consistently below traditional wholesale or retail outlets.”

The 20-year journey began with two companies. In 1976, Sol and Robert Price opened the Price Club in San Diego. It was the first-ever warehouse club for business shoppers. In September 1983, the Costco in Seattle opened, followed by Costco stores in Spokane, Wash., and Portland, Ore.

The two companies served as separate entities for many years. In 1992, Costco opened its 100th store location, and in 1993 shareholders allowed the merger of Price Co. and Costco. In 1999, the company became Costco Wholesale Corp.

Numerous innovations have kept Costco on top of its game, including the addition of pharmacies and optical and one-hour photo labs, fresh meat, produce and bakery departments.

With an abundance of product, Costco has long been known as the place to go for a discount.

“Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing and accounts receivable,” Jim Sinegal, the company's president and COO, said on the company's Web site.

The company had 418 warehouses as of July, with 309 U.S. locations, 61 Canadian locations and warehouses in the United Kingdom, Taiwan, South Korea, Japan and Mexico. The company's warehouses enjoy an average of 136,177 square feet. With an annual revenue of $37.99 billion for the fiscal year ended in September 2002, up 11 percent from the previous fiscal year, Costco has some 102,000 full and part-time employees worldwide.

Its membership structure has proven a formidable draw for customers. The three types of membership -- Business, Gold Star and Executive -- each offer privileges. As outlined in the company's literature, Business members qualify by owning or operating a business, and pay an annual fee to shop for resale, business and personal use. This fee includes a spouse card. Business members may purchase up to six additional membership cards for partners or associates in the business.

Gold Star memberships are available to those who do not own a business, while Executive membership allows all the usual benefits, and also allows members to purchase discounted consumer services -- auto and homeowners insurance, real estate and mortgage services, long-distance telephone, auto buying, personal check printing and financial planning, among other services.


Lower costs and easy availability are seen in Costco's success at selling VHS and DVD. Customers look to the store for a well-stocked, diverse selection. A recent trip to the Costco store in San Marcos, Calif., illustrated this. Centrally placed in an easy-access location, though not gigantic in size or flashy in display, the DVD and VHS shelves stocked numerous copies of big-name hits such as The Lord of the Rings: The Two Towers and Chicago, among many others.

The shelves also enjoyed a healthy supply of fitness and children's titles, as well as documentaries, anime, classics and musicals. The children's section elevated in age-group level, moving from Piglet's Big Movie to Agent Cody Banks to The Lizzie McGuire Movie, making it easier for parents to shop for their children.

Prominently displayed were enticing special offerings, such as an MGM horror trio -- Carrie, The Fog and The Howling -- that included discount admission to the theatrical film Jeepers Creepers 2.

At the top of the shelves, a healthy supply of VHS cassettes could be found, especially of name titles. And while there is a loose order to the offerings, you can also find surprises every few rows, part of the successful Costco strategy to provide its customers with unexpected delights -- many times, items they could not find anywhere else.

“[Costco is] a professional organization from top to club level,” said John Reina, SVP of sellthrough, North America, for Columbia TriStar Home Entertainment. “Costco has always been ahead of the curve in merchandising, from special value packs to merchandising trays that spell out value to its members.”

Ken Williams, SVP of sales, North America, for Paramount Home Entertainment, said: “Costco is in a class of its own, with its innovative and creative packaging and merchandising. It has a great team.”

Costco is also known for its publication, The Costco Connection, an all-purpose magazine that addresses lifestyle trends and includes news on the home entertainment software industry.

Jeff Pietrzyck, SVP of sales at MGM Home Entertainment, said Costco is a vital component to the studio's success.

“Costco has succeeded because it has a simple but meaningful tradition,” Pietrzyck said. “It is one of the most effective partnerships we have. The staff there is very intelligent and respectful. We have embraced Costco as shoppers for the past 20 years because it has built something compelling to us as consumers.”

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