Costco

Two months ago, I listened to the Acquired episode about Costco, and it changed my life. Jules and I drove to our nearest Costco to become members and just “see what’s available.” Well, $400 later, we did more than look. I couldn’t help myself. The golf balls alone are an unbelievable deal. Four dozen Kirkland golf balls PLUS the yearly membership was cheaper than buying four dozen Titleist Pro V1s. Before you ask, they are just as good.

Behind the amazing deals on golf balls, almonds, peanut butter, or hot dogs, Costco is the definition of what’s good for your customers is good for business. You might already love it for the value, but after this, you will love it for who Costco truly is. 

A Brief History

In 1976, Price Club opened its first warehouse in San Diego as a direct to business, bulk wholesale. Sol Price realized that this wholesale model would work with everyday customers and quickly expanded.

In 1993, Price Club merged with Costco (a similar warehouse store started in Seattle) and the company became PriceCostco before dropping the “price” in 1997. It’s cleaner. 

Today, there are 870+ warehouses globally, and the company ranks in the top 10 on the Fortune 500 list.

The Membership Model = Built-In Moat

Costco flips the traditional retail model on its head. Most retailers earn their profits through product markups. Costco? Not so much.

Costco caps its markup at around 14%, compared to 25-50% at traditional retailers. That’s how they offer TVs, steaks, wine, and toothpaste at prices that feel like cheating. In 1976, they kind of were cheating due to retail price laws.

These old laws required public retailers to sell products within a certain range of the MSRP (market suggested retail price). Price Club got around this by saying they weren’t a public retail store. They are a membership club and the retail laws don’t apply to them. Amazing loophole. 

What started as a sexy work around has become a major profit center.

Memberships.

As of 2024, Costco has over 130 million members paying either $60 (basic) or $120 (executive) per year. That’s billions in near-pure profit before a single product is sold. In 2024, it was $4.8 billion to be exact. In fact, Costco’s net income often comes almost entirely from membership fees, meaning they can essentially run the store operations at break-even. Wild.

This model also creates incredible customer loyalty. Once you’re in the ecosystem (and getting 48 golf balls for $55), it’s hard to leave.

Fewer Products, Faster Turnover

Costco has a uniquely disciplined product strategy. A typical Walmart carries over 100,000 SKUs (Stock Keeping Units). Costco? Just about 4,000.

That means:

• Costco is hyper-selective. They only stock 1–2 options of any given product.

• They can buy in larger volumes, which allows for better supplier deals.

• Products turn over quickly. In fact, if you go once a month, every item is likely different from your last trip since Costco sells through inventory 12.5 times a year.

This high-turnover, low-inventory approach keeps operating costs down and adds a bit of treasure-hunt psychology to the shopping experience. It’s efficient and addictive.

Kirkland Signature — The Private Label That Outsells Big Brands

Costco’s in-house brand, Kirkland Signature, launched in 1995, and has become a juggernaut. Today, Kirkland does more than $60 billion in annual sales, which makes it larger than Coca-Cola, Nike, or PepsiCo as a standalone brand.

Even more impressive? Many Kirkland products are manufactured by the same companies behind the brand-name products. For example:

• Kirkland batteries? Made by Duracell.

• Kirkland diapers? Formerly made by Kimberly-Clark (Huggies), now made by Cuties.

• Kirkland vodka? Rumored (heavily) to come from the same distillery as Grey Goose. Okay this isn’t true, but the rumor indicates how good it is.

Consumers have caught on. Kirkland products often outperform name-brand competitors in quality and price, which builds trust and drives repeat purchases — all while increasing Costco’s margins on those goods.

Other Fun Facts

• Costco is one of the largest wine retailers in the world. They are second to Total Wine and have nearly $3.5 billion in wine sales alone.

• Their legendary $1.50 hot dog + soda combo hasn’t changed price since 1985. Co-Found Jim Sinegal told the then-CEO that he’d “kill him” if he raised the price.

• Employees are treated well: Costco pays higher-than-average wages and offers strong benefits, resulting in low turnover and high morale.

Final Thoughts

Costco is one of those rare companies that balances customer value, employee satisfaction, and investor returns. Its stock has consistently outperformed the broader market, not through flashy ads or digital tricks, but through simple, boring, disciplined excellence.

It’s not trying to be everything to everyone. It’s just really, really good at what it does. 

Debrief on Deck

Next week is another iteration of the Monthly Market Debrief. Before you say it, I will admit it. I was very wrong about inflation. For the first time in my life, I am happy I was wrong. Now we wait to see what the tariffs (or maybe not?) will do.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on Instagram.

Until then, stay the course.

Disclaimer