How Costco became the king of bulk buying starting out selling only to businesses out of an old airplane hangar (2024)

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The story of Costco begins decades before the first store launched in 1983 with FedMart, a discount department store for government employees.

FedMart was founded by entrepreneur Sol Price. Jim Sinegal started his career at FedMart and thought of Price as a mentor.

The pair developed and refined the wholesale club strategy together at FedMart, which was one of the first general merchandise retailers to expand into other categories like groceries, gasoline, and prescription drugs.

Sam Walton liked what Price and Sinegal were doing with FedMart in California so much that he opened the first Walmart in Arkansas 1962.

"I guess I've stolen – I actually prefer the word 'borrowed' – as many ideas from Sol Price as from anybody else in the business," Walton later said.

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After an investor forced Price out of FedMart, he leaned more heavily into the membership model in 1976 with Price Club.

Price wanted his store to be a wholesale supplier for small businesses, and he opened his first location in an old aircraft hangar that was once used by aviator Howard Hughes.

In 1983, Sinegal and Walton each launched members-only warehouse clubs — Costco and Sam’s Club — that bore striking resemblance to Price Club.

The basic concept across each company was the same: shoppers pay a fee in order to gain access to the bargain pricing. In each case, the business relies on membership fees more than product markups to earn a profit.

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Company sales in that first year reached $101 million, plus $1.3 million in membership fees, according to SEC filings.

In the beginning, non-members could shop as long as they paid a 5% surcharge on their purchases. There are still a few ways to shop at Costco without a membership.

Sales at Costco rocketed from zero to $3 billion in less than six years — a first for any company in history, according to the company.

Costco became a publicly traded company in 1985, initially offering shares for $10. Due to several stock splits, one initial Costco share would be six today, worth a total of more than $3,200.

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Despite their similarities, Costco, Price Club, and Sam's Club weren't direct competitors, as each had a sizable geographic territory in which to expand.

Price Club was largely in the Southwest, centered in San Diego, while Arkansas-based Sam's Club had the Midwest and Southeast, and Costco took the Northwest, headquartered in the Seattle area.

One way Costco found to keep prices low was to sharply limit the number of different products in its inventory.

Even today, Costco only carries around 4,000 unique products in its assortment— referenced by stock-keeping-unit codes or SKUs — while typical supermarkets carry 30,000 or more.

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In 1993, Price Club and Costco joined forces and began operating as PriceCostco with 206 locations and $16 billion in annual sales.

Memberships from each brand were honored by the other.

The company dropped the awkward PriceCostco branding in 1997 and reverted to Costco.

A few remaining Price Club locations were rebranded to Costco at this time as well.

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In its 20th anniversary year, Costco had 430 warehouses in North America, Asia, and the UK, over 40 million membership cardholders, and generated $42.5 billion in revenue.

That year the company ranked ninth among the world's largest retailers.

US warehouses that year generated an average of $112 million in annual sales, while 11 locations exceeded $200 million.

Costco also opened its fifth Business Center that year, a concept that caters more to small business owners than to household shoppers.

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Sinegal retired as CEO on January 1, 2012, handing the leadership to the company's head of merchandising, Craig Jelinek.

Sinegal continued to serve as Company Advisor and Director, ultimately retiring from the Board in 2018.

Jelinek had also previously worked for FedMart, and was one of Costco's early hires in the 1980s, rising to vice president in 2004 and currently CEO.

Jelinek was in charge of opening Costco's sixth location and helped the company expand in Nevada and California. As vice president of merchandising oversaw a range of priorities including e-commerce, foods, and pharmacy.

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Costco became the third largest retailer in the world in 2014, a ranking it still holds today behind Walmart and Amazon.

Walmart made more than $600 billion in worldwide retail sales in 2022, followed by Amazon at $343 billion, and Costco at $217 billion, per the National Retail Federation.

Costco turned 40 in September with 838 locations around the world and nearly 129 million membership cardholders.

Costco has made more than $237.7 billion in revenue for the fiscal year.

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CFO Richard Galanti confirms Costco had been selling 1-ounce gold bars and that they've been selling out "within a few hours."

"When we load them on the site, they're typically gone within a few hours and we limit two per member," Galanti said on the fourth-quarter earnings call in September.

In October, CEO Craig Jelinek announced he would step down at the end of the year.

Jelinek handed over leadership of the wholesale club to Ron Vachris, a 40-year employee of the company who had served as the company's president and chief operating officer since 2022.

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Ron Vachris took over as Costco CEO on January 1, becoming just the third person ever to hold the top job.

A 40-year employee, Vachris started as a forklift driver at Costco's predecessor, Price Club, and has since worked in pretty much every area of the company.

Longtime CFO Richard Galanti stepped down, but his successor assured fans the $1.50 hot dog combo is "safe."

"While I can't promise to be able to match the humor that Richard Galanti has become famous for, I can promise the same level of open dialogue and transparency you've come to expect," incoming CFO Gary Millerchip said during his first call in the role. "Oh, and to clear up some recent media speculation I also want to confirm the $1.50 hot dog price is safe."