Costco Wholesale Corporation

What does it do?

Costco runs giant warehouse stores where you pay an annual fee just to shop there — think of it like a Netflix subscription, but instead of shows, you get access to bulk-sized groceries, electronics, and even cheap rotisserie chickens. Walk into any Costco and you'll find massive pallets of olive oil next to 85-inch TVs next to a pharmacy. They operate over 890 warehouses across 14 countries, including the US, Canada, UK, Japan, and Australia. The whole idea is: buy in enormous quantities, keep costs razor-thin, and pass the savings to members.

How does it make money?

Costco generated $275.2 billion in revenue last year, up from $254.5 billion the prior year — a solid 8% increase. The vast majority of that comes from selling merchandise at wafer-thin markups, often capping product margins at around 11-12%, far below typical retailers. The real profit engine is membership fees: Costco charges roughly $65–$130 per year per household, and with over 130 million cardholders globally, that fee income is nearly pure profit that funds the entire operation. Net income came in at $8.1 billion, a healthy profit for a business that deliberately prices goods at cost.

Why do investors care?

Investors love Costco because the membership model creates an incredibly sticky, loyal customer base — renewal rates consistently sit above 90%, meaning once someone joins, they almost never leave. The growth story is international expansion (China, Europe, and Australia are still underpenetrated) and steady membership fee increases, with the most recent fee hike in 2024 adding directly to the bottom line. For the thesis to work, Costco needs to keep opening new warehouses at a disciplined pace, retain members through value pricing even as competitors like Amazon and Walmart improve their bulk offerings, and successfully expand its e-commerce presence. It also benefits from its own private-label brand, Kirkland Signature, which commands extraordinary loyalty and helps protect margins.