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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsCostco's CEO explains how they make record profits:
Take note Walmart...
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CaliforniaPeggy
(149,580 posts)If the company treats its employees well and with dignity, then they will return the favor.
The Golden Rule, if you will.
Bravo, Costco!
freshwest
(53,661 posts)Makes for a great experience. Haven't been to a WalMart in years, only visiting friends out-of-state in towns where they are monopolies. The feeling at WalMart is *heavy* whereas at COSTCO it's bouyant. No matter how large the crowds, and they're always busy, you can find a sense of comraderie. Not a fantasy, treat others as you wish to be treated, and it's good for all.
Spitfire of ATJ
(32,723 posts)
Ed Suspicious
(8,879 posts)production... a cost that they feel needs to be minimized.
Spitfire of ATJ
(32,723 posts)
TroglodyteScholar
(5,477 posts)Well, not really. I already have a good idea. 
MrMickeysMom
(20,453 posts)Honest to God…. We just joined recently. It's quite apparent.
That alone, plus the good things I choose to buy there will get us to come back again.
For crying out loud… why is this such a concept, America?
freshwest
(53,661 posts)
sendero
(28,552 posts)... "and sell only quality products, shoddy goods are not a bargain at any price".
Do love me some CostCo.
SoapBox
(18,791 posts)Doesn't everyone want and need crappy gel like flip-flops with a big plastic flower, for $.89 that smell like rubber and are made in Third World type countries by virtual slave labor?
Guess the Walmart crowd isn't so concerned about wasting their monies on shoddy products?!? Go figure.
Whisp
(24,096 posts)They want a Mad Max Road Warrior global society to get their hard ons, they want to play with life and death - they are at a point where money is almost too easy to get and the stakes must be higher.
We are the stakes.
SomethingFishy
(4,876 posts)People work for Costco and they want to stay there...
Plus for those that didn't know, all upper management salaries are capped. The CEO is capped at 6 figures.
Costco rocks.
indepat
(20,899 posts)years. 
Sen. Walter Sobchak
(8,692 posts)Selling a sense of frugality to Range Rover driving suburban moms.
Armstead
(47,803 posts)No reason Wal Mart couldn't remain profitable by treating their workers well too, and still cater to their present market.
polichick
(37,152 posts)even went with them a couple of times and found some deals.
abelenkpe
(9,933 posts)Well damn I guess I should stop going there then.
All those Costco's in Los Angeles aren't meant for us urbanites. Who knew?
LittleGirl
(8,282 posts)Really, cuz we're not rich like that and we want to shop where employees are treated like humans and have paid HOLIDAYS and vacations and healthcare. Screw Walmart. I'm tired of my tax dollars supporting their employees while the Walmart Family lives high on the hog and better than 3.5 billion people on this planet.
Sen. Walter Sobchak
(8,692 posts)
spooky3
(34,429 posts)1) do you have a link or is that just your guess?
2) what difference does it make, if true? Other than imposing the annual fee, does Costco discourage any paying customer from shopping there?
3) assuming your 20% is true, have you factored in their location in cities, where incomes are going to be higher than rural areas, where no small-margin, high volume store is likely to locate?
Sen. Walter Sobchak
(8,692 posts)These PowerPoint slides are ten years old, but nothing has really changed other than this demographic has continued to generally do okay while others have slid.
spooky3
(34,429 posts)That most of the people cited are analysts offering their opinions, not Costco strategists, and the one quote from a Costco CEO appears to address just one of many types of their customers. And in fact huge jars of mayo etc are what you frequently find on Costco shelves. The CFO comments also seem to focus on "what is" rather than on the strategy consciously employed.
The bar graphs show the demographic breakdowns rather than the strategy of targeting. And what is the definition of "affluent"? Is it top 20%?
My other questions remain unanswered.
So I am not convinced about the targeting strategy or that it accounts for how and why Costco's HR strategy is what it is, or for its profitability. They may in fact use the strategy you are describing but more evidence would be helpful.
Sen. Walter Sobchak
(8,692 posts)You are deep into "water is wet" territory here. This is not a subject of debate anywhere.
How many ways are there to interpret this statement?
“I think it's the merchandising effort, as well as who we go after in terms of our member. Our member tends to be a higher-end member, both small business owners and managers, as well as higher-end consumers, and our merchandising efforts reflect who our members are.” Richard Galanti, CFO, Costco, September 2001
spooky3
(34,429 posts)So it's pretty useless to play word games with me or tell me you've made your case when you have not.
That's it for this conversation.
Response to spooky3 (Reply #72)
Sen. Walter Sobchak This message was self-deleted by its author.
kestrel91316
(51,666 posts)Gelson's and Whole Foods also cater to the higher income, but I still shop there for a lot of my produce because it's far superior in quality.
Sen. Walter Sobchak
(8,692 posts)But there is a whole hell of a lot more to the Costco story than their management not being assholes.
spooky3
(34,429 posts)
msongs
(67,394 posts)Egnever
(21,506 posts)shop there every week so we should be getting a raise any time now i guess.
FailureToCommunicate
(14,012 posts)I was about to just say hello, then noticed NOBODY else was greeting him either. I almost felt sorry for him.
But I got over it instantly, and moved on
theHandpuppet
(19,964 posts)Nowhere near that figure in our household. We shop there to save money and we can buy for the local food pantry in bulk.
Sen. Walter Sobchak
(8,692 posts)The average Costco member is in the top 20% of US households,
pnwmom
(108,973 posts)It caters to people who do have sufficient income to plan their purchases over an extended period of time, but you don't have to be wealthy to that -- just non-poor.
It also caters to small business owners.
Egalitarian Thug
(12,448 posts)of micro and very small businesses, pre-reagan. When Sinegal partnered, in 1983 he brought a decidedly anti-reagan management philosophy and it has been key to their success.
Costco doesn't keep spending (losing) millions of dollars every year on their hot dog sales because their customers need the break. Lots of their most valued customers need that high-quality hot dog and a coke for $1.50.
eridani
(51,907 posts)We get about $1000 too much to get into subsidized senior housing. The complex a couple of blocks from me takes residents to Costco by the busload.
6 months supply of toilet paper for $15.00--hard to beat that.
BKH70041
(961 posts)Wal-Mart wants to sell a whole lot of merchandise on a small margin.
Costco is a land acquisition company posing as a retailer.
El_Johns
(1,805 posts)
Glassunion
(10,201 posts)
Customers of Costco pay an annual fee to be a member. The money Costco makes off the sale of merchandise goes towards Cost of Goods Sold, paying operating expenses, paying their employees, dividends, etc... It all gets plowed back into the operation. However, the money they make from the annual fee goes towards acquiring the building and property. I call that a land acquisition company.
It's the same basic business model Ray Kroc instituted with McDonald's. What would you rather have: A hamburger joint or land. I'd rather have land. If I can use selling hamburgers as a means to that end, good for me.
Here's another one: GE is a leasing company. I'll let you enjoy learning why that is in your own research.
Good Day!
El_Johns
(1,805 posts)BKH70041
(961 posts)Wal-Mart would just as soon some developer own the building and land and let them pay $3 a square foot.
It makes recommending Costco stock appealing. The investor is not just buying a company that sells merchandise. Rather they're buying a company that is acquiring real property; something that's not here today and gone tomorrow. The savvy investor understands the difference.
El_Johns
(1,805 posts)As the world's biggest retailer, Wal-Mart Stores Inc. wmt -0.72% pays billions of dollars a year in rent for its stores. Luckily for Wal-Mart, in about 25 states it has been paying most of that rent to itself -- and then deducting that amount from its state taxes.
The strategy is complex, but the bottom line is simple: It has saved Wal-Mart from paying several hundred million dollars in taxes, according to court records and a person familiar with the matter. And Wal-Mart is far from alone.
http://online.wsj.com/news/articles/SB117027500505994065
http://www.walmartrealty.com/
Wal-Mart is known worldwide as a major retailer, offering an endless supply of merchandise to the more than 138 million customers that visit its stores each week. However, Wal-Mart’s business involves more than just kitchen appliances, apparel, and electronics - it also involves real estate. A division of Wal-Mart Stores Inc., its real estate arm - Wal-Mart Realty, based in Bentonville, AR - concentrates on the disposition (through sale, lease, and/or sublease) and management of soon-to-be vacated or vacant Wal-Mart and SAM’S CLUB facilities. In simple terms, Wal-Mart Realty deals with excess space, finding new uses for former Wal-Mart stores.
By vertically integrating this major portion of its real estate operations, Wal-Mart Realty’s unique take on surplus allows the organization to control its environment, costs, and power in the marketplace - and to squeeze added revenue from its real estate deals.
http://www.buildings.com/article-details/articleid/2980/title/real-estate-according-to-wal-mart.aspx
Major Nikon
(36,827 posts)Savvy investors look at it in the same way they would look at other capital in the debt-to-capital ratio. The difference being you have to pay property taxes on real property.
A HERETIC I AM
(24,365 posts)With very few exceptions, they own the land their stores sit on.
From what I understand, most other fast food retailers do not.
pnwmom
(108,973 posts)spooky3
(34,429 posts)True land acquisition companies to make money than the way that Costco makes money.
Also, corporations don't separate their income into glass jars for spending. It all comes into one pot. The member fees and revenues from sales are used for any costs.
Very odd claim, isn't it?
L0oniX
(31,493 posts)SleeplessinSoCal
(9,110 posts)They're getting brainwashed.
Walmart’s Greed Exposed: They Could Pay Employees $25,000/Year Without Raising Prices
A new Demos study has revealed that the only thing stopping Walmart from paying their employees $25,000 a year without raising prices is their ridiculous level of greed.
According to Demos, here is how Walmart could afford to pay their workers $25,000 a year without raising prices,
http://www.politicususa.com/2013/11/19/walmarts-greed-exposed-pay-employees-25000year-raising-prices.html
LittleGirl
(8,282 posts)of one of my photos. Absolutely, LOVE Costco and Love this CEO.
Won't step foot in Walmart and haven't for years and years!
Glassunion
(10,201 posts)Like most publicly traded companies, WalMart does not think about the future. They think about their investors in the immediate here and now. Costco is the exception to the rule. You want to make a few bucks really fast, wait for a long stretch of no news from WalMart, then invest. They will do a lay off, or announce a new partnership with some shitbag forced labor factory in China and boom stock will jump a few points. You want to make a lot of money. Invest in Costco, and walk away. Check it again in a few years, you'll be pleased.
The company I work for has had this philosophy since almost day 1. 45+ years later, our company is consistently voted as one of the best companies to work for in several states, each and every year. We have the very lowest turnover across the industry, and even in a recession has managed to stay profitable and add living wage jobs to our communities. We answer to ourselves, no one else.
greytdemocrat
(3,299 posts)
jmowreader
(50,552 posts)Everyone who has a Costco card, this exercise is for you: On your way to Costco next time, stop first at Walmart and buy soap. (Or anything really, but soap is something we all use so why not.) You will see they've got every kind of soap known to man. If there was such a thing as Ball Soap just for washing men's private parts, Walmart would have it. And it's in many different sizes - three-bar packs, eight-bar, single-bar. Then go to the soap aisle at Costco. They've only got a couple different soaps, and most of what they have is Kirkland Signature - Costco's house brand. All of it's in big packages.
In retail, we have a thing called "turns." What it basically means is, how many times per year can we completely sell through our inventory? If your store keeps 100 cans of purple spray paint on hand at all times, and you sell 1000 cans of it a year, you are doing 10 turns on this product. Each item has a turn rate, each department has one and the whole store has one. Because you borrow money to buy inventory, the slower your turn rate is the more each item costs you.
Now, the most certain way to increase the turn rate on an item is to reduce the number of choices a customer can make. If you sell a thousand bars of soap a day and you have a hundred choices, you'll sell a lot of some brands, a little of some others and none of some, and pay interest on the loans on them all. If you sell the same thousand bars and all you have is a "mild" bar, a "beauty" bar and a "deodorant" bar (which only differ in color and aroma), they'll all turn quickly. And if you require your vendors to package merchandise so it can be shelved quickly, you need fewer employees to get the job done.
Costco doesn't make record profits because they treat their employees well. They make those profits because their business model is so highly tuned.
yourout
(7,527 posts)really works over their vendors.
By doing that the vendor only gets paid after Walmart sells the item.
Shortly after christmas I noticed almost all christmas items were gone and asked someone how they sold them so fast and they told me they get returned to the vendor and were there on consignment.
Armstead
(47,803 posts)spooky3
(34,429 posts)Are BOTH pieces of the puzzle. It is not either-or.
jmowreader
(50,552 posts)We can all agree that Costco treats its people well.
We can also all agree that Costco has low prices.
The tradeoff is, the stores are in the industrial part of town, they look like flea markets inside, they've been designed to not require very many employees or much energy to run, they're not open 24/7, and the one kind of socks they have come in a bag big enough to dress a football team. It also costs a customer at least $50 per year for the privilege of shopping there.
Then there's Nordstrom. They treat their people well, have great selection, and have beautiful stores in high-rent districts. The tradeoff there is a pair of pants costs $90.
And then of course is Walmart and its partners in crime Target, Kmart and Shopko. They have low prices, stores that don't look like dungeons and aren't in the wrong part of town, and great selection...but they consider their employees to be serfs and pay accordingly.
The way the OP's little cartoon was written, all Walmart would have to do to have record-setting profits is to double their employees' pay. There's a hell of a lot more to Costco's success than that.
spooky3
(34,429 posts)Another variable on which corporations can choose to spend more or less money.
Interestingly, another poster in this thread claims that Costco is profitable because it targets high income customers. But that would imply that downscale store decor would not be used.
You might want to check out the businessinsider.com link in another of my posts in this thread, which describes a number of variables involved in Costco 's success.
Also, check out research on efficiency wage theory.
Barack_America
(28,876 posts)I really don't need to spend 5 minutes deciding which OJ to buy, only to turn around and spend 10 minutes on a salad mix. At Aldi it's, "OJ...check....salad...check". Makes life so much easier.
AZ Progressive
(3,411 posts)One charges a membership fee, sells a relatively few food items mostly in bulk, as well as high price electronics for less, and the other is the opposite (except in TVs) and caters to extremely value conscious people. Walmart's model is to sell a relatively high variety of low margin products (except certain electronics) in very high quantities. There are cost savings in selling a relatively few amount of products in big bulk (mainly in having to track and manage a lot less distinct products.)
It's also a factor that Costco's customers tend to be affluent while Walmart shoppers are typically poorer or relatively broke. It's understandable that Nordstroms for instance can afford to pay its workers a lot more than Sears for instance.
Armstead
(47,803 posts)Bottom line is Wal Mart is an immensely profitable company (whose handful of owners are worth over $100 billion).
They could stand to absorb the cost of paying their employees better.
It doesn't really matter what specific marketing strategy a company uses to make a profit. their employees should also benefit from their success.
AZ Progressive
(3,411 posts)But you can't directly compare two businesses so easily and make sweeping judgements.
The other issue here is that Costco basically tells Wall Street: "This is how our business is going to be and you can either take it or leave it" and delivers on profit while paying their workers very well, while Walmart does everything it can to please its investors including paying their workers very low (though actually Target pays even lower.) Costco stands up for their values while Walmart kisses the feet of Wall Street and the Walton family and swears to wring out as much profit as possible.
I must say that it is a challenge not to buy certain things in Walmart, especially if you are a night owl and it's past 10 pm when Walmart's the only retailer open (many open 24 hours) and when you do a lot of traveling between big cities and Walmart is the only retailer in so many smaller cities.
Armstead
(47,803 posts)IMO it doesn't matter what the business model, that should be a basic. Business 101.
Just like if you can't find a way to a pay for the merchandise you can't sell anything. Can't pay the light bill can't afford to be in business...etc.
But these days, they want something for nothing, and the nothing is too often screwing over workers.
Lest i sound like a purist, i have to admit that I occasionally venture into Wal Mart when there is no other choice. But whenever thereis a choice i avoid the place. (There are no Costcos here so that isn't a factor.)
LittleBlue
(10,362 posts)You don't even need a big family. My wife and I go there for all kinds of things that we use regularly. Costco is especially useful when we're hosting larger groups. It justifies the yearly fee.
Incitatus
(5,317 posts)The savings on kiwis and pistachios alone will more than pay for the annual fee.
Boom Sound 416
(4,185 posts)
XRubicon
(2,212 posts)It was a nightmare, you had to get your own boxes and pack them. Not sure when it happened but now they help unpack the cart, scan then repack the cart. They do it faster than the local grocery.
I think they are great.
ck4829
(35,042 posts)It really is telling about the condition of America when a CEO regards his employees as having intrinsic value and not being just some interchangeable part being some sort of novel idea, or, for Wal-Mart defenders, crazy talk.
demigoddess
(6,640 posts)and the lady at the door noticed the mistake and I got an immediate refund. Only took about 3 minutes. when you think about it, it is cost effective. Also my husband gets answers from Costco employees, while at Walmart I guess you would get a "Dunno".
barbtries
(28,787 posts)there isn't one terribly convenient to me, but i'm about to be raising a 17-year-old for a few months and it'll be worth the drive.
kcr
(15,315 posts)or all these other reasons they're making profits, other business models, etc. You know what? I don't care. I'm going to support a business that treats its employees right simply because they are. I don't care what the reason is. This is a business practice we should be encouraging, whatever the reason. If Costco wants to use this business practice as a selling point? More power to them! People should be aware of it and should see this as a positive thing! Why on earth is anyone on DU dismissing this?
Barack_America
(28,876 posts)And why I will not step foot in a Wal Mart.