Costco Effect 🛒

In 2008, when the U.S. housing market crashed, Wall Street plummeted, and panic seized the global economy. Millions lost their jobs overnight, businesses went bankrupt, and America fell into a recession. This was also the time when most retailers lost sales, but not Costco. That year, its net sales soared by 13%, rising from $63 billion to nearly $71 billion.

The story was similar during COVID-19. In 2020, as stores shut down and supply chains struggled, Costco’s sales climbed by nearly $14 billion, hitting $163 billion by year’s end.

And now in 2025, as Trump’s new tariffs send retailers scrambling, Costco is holding steady again. In March alone, it pulled in $25.5 billion in sales, up 8.6% from last year, according to Costco’s March sales report. Even better? Costco has notched 12 straight weeks of rising foot traffic while others watch shoppers walk away.

But how is Costco able to do it? 

In this issue of CrossDock, we break down Costco's business model and strategies. We will take you through the bold decisions that have played a pivotal role in its success and explain how the retail giant is preparing to weather the tariff storm. 

To understand the current success of Costco, we need to go back in time and first learn about its inception. 

How was Costco formed? 

You can’t tell the story of Costco — or the American retail industry, for that matter — without starting with Sol Price. He launched FedMart in 1954 in San Diego — a discount department store open only to government employees who paid a $2 per-family membership fee. In its first year, FedMart earned four times more than its investors had projected. Over the next two decades, it expanded to 45 stores across California and the Southwest.

But success didn’t shield him from boardroom politics. Price was eventually ousted from his own company. And in classic Sol Price fashion, he didn’t quit. Instead, in 1976, he launched a new venture: Price Club. His vision was simple, almost radical for its time — no fancy storefronts, no middlemen, just bulk goods and deep discounts for members willing to pay for access.

In his autobiography Made in America, Walmart founder Sam Walton credited Sol Price’s membership model, bulk selling strategy, and no-frills approach as key influences on Walmart.

It wasn’t just the legendary Sam Walton who borrowed from Sol Price’s playbook.  One of his own — a former FedMart bagger who rose to become Vice President — was quietly taking notes. That man was James Sinegal, and in 1983, alongside Jeffrey Brotman, he co-founded Costco in Seattle, using the same membership-based warehouse model, but for everyday consumers.

And in 1993, Costco and Price Club merged, forming PriceCostco. Two years later, the company was renamed back to Costco. 

Today, Costco is the third-largest retail chain in the world, following Walmart and Amazon. It generates nearly $250 billion in annual revenue and operates close to 890 warehouses worldwide. That's not bad for a business that started in an old hangar with pallets and price tags.

 And behind this success lies unconventional business decisions, customer-first focus, and innovative pricing models. Let’s dive deep into that. 

Game Plan

Step into a Costco, and it’s immediately clear: this isn’t your average retail store. The ceilings stretch high overhead, the lighting is unapologetically bright, and products are stacked on bare industrial steel racks, often still on their pallets. 

There are no sleek displays or curated endcaps; it’s just row after row of bulk goods, towering boxes, and members wheeling oversized carts. 

Another thing that immediately stands out is the sheer size of Costco stores. A typical Costco warehouse spans around 146,000 square feet.

But it’s not just the scale that’s disorienting — it’s how time disappears inside. 

According to Placer.ai, the average Costco shopper spends 38 minutes in the store. Compare that to 33 minutes at Sam’s Club, 32 minutes at Walmart, and just 27 minutes at Target. 

Also, a “treasure hunt” effect is built into the experience. Costco rarely labels aisles clearly, and many of its most in-demand or seasonal items are moved around frequently, on purpose. It turns shopping into a game, rewarding curiosity with unexpected finds. And the longer you linger, the more likely you are to fill up that cart.

End result: You might walk in for detergent, but leave with a flat-screen TV, a set of steak knives, and a gold bar.

“People come in to spend $100 and walk out with $300,” CEO Ron Vachris said during a May 2024 earnings call. 

Shoppers throng to Costco stores, not just for the immersive experience, but also for the price point that Costco offers.

Let’s break that down for you.

A big part of Costco’s pricing success comes from what it doesn’t do: overload its shelves. For example, traditional supermarkets and big-box retailers may carry anywhere from 30,000 to 60,000 stock-keeping units (SKUs) in their stores. In fact, a Walmart supercenter has as many as 150,000 SKUs. 

But Costco, on the other hand, deliberately keeps its SKU offering low, around 4,000 active items at any given time. It is not a limitation, it’s a strategy. 

Because Costco only stocks a small number of items, every product on the shelf has to really earn its place there. That gives Costco a strong hand when dealing with suppliers. If a brand wants to get in, it knows there’s limited space and that it might be the only option in its category. In exchange, Costco asks for lower prices and big volume deals.

On top of this, Costco’s limited SKU strategy leads to faster inventory turnover. With fewer, high-performing products moving in bulk, items don’t linger on shelves, which helps drastically cut down on storage costs and minimize waste. According to industry reports, Costco turns over its inventory 12 times a year, compared to 8 times for Walmart and just 5 times for Home Depot.

Finally, Costco's low markup strategy helps keep its prices low and increases customer loyalty. 

Costco operates on one of the most efficient pricing models in retail, with an average product markup of just 14%. 

In contrast, most traditional retailers apply markups ranging from 25% to 50%, depending on the product category. 

According to Fortune, Walmart averages a 24% markup, while Home Depot and Lowe’s both come in around 35%. This low markup approach is a key reason why Costco consistently delivers prices that are hard for competitors to match, let alone beat. 

But why is Costco so fixated on low prices? 

Interestingly, former CEO and Costco founder Jim Sinegal has already answered this.

A classic example to showcase Costco's commitment to low prices is its iconic hot dog and soda combo. The combo was priced at $1.50 in 1985, and nearly 40 years and a handful of inflation and recessions later, the price is still the same. 

Its relentless adherence to low prices and customer-centric sales today has allowed Costco to dominate the US warehouse club industry with a market share of nearly 60%. And Costco’s private label brand, ‘Kirkland,’ plays a major role in this success. 

Kirkonomics

According to the Private Label Manufacturers Association’s Circana Unify+ data, store brands — also known as private labels — reached a record-breaking $271 billion in 2024, adding $9 billion more from 2023. That’s a 3.9% increase year-over-year, while national brands barely inched forward with just 1% growth. 

These numbers tell a clear story: consumer appetite for private labels is growing stronger than ever. And long before it became a retail trend, Costco had already seen it coming. Over three decades ago, the company began building what would become one of the most trusted private label brands in the world: Kirkland Signature.

The idea of starting a private label brand started when Jim Sinegal read an article on Forbes that discussed how European consumers were moving away from name brands and switching to in-house brands of retail chains. 

So, the company initially went wide, launching multiple private labels with names like Chelsea for toilet paper, Cloud for detergent, and others. This move was modeled after the industry playbook. 

Soon, however, the growing number of brand names began to create confusion, not just for shoppers but also for warehouse managers trying to keep track. That’s when Costco made a bold decision: consolidate everything under a single brand name — Kirkland Signature (the first headquarters of Costco). At the time, it was a risky choice. If even one of your products fails to meet customer satisfaction, it can impact the entire label. 

Also, back then, companies like Sears followed the norm of having a separate brand for every category. Costco, instead, bet on simplicity, consistency, and trust. And that gamble would go on to redefine the private label game.

Currently, with nearly 350 products under it across various categories, it is a big revenue driver for Costco. According to the company’s annual sales report, Kirkland Signature brought in $86 billion in sales last year, accounting for nearly one-third of the company’s revenue. 

To put that into perspective, Kirkland’s revenue surpasses the revenue of bigger brands, such as Nike, Coca-Cola, Procter & Gamble, Kraft-Heinz, and United Airlines.

Interestingly, in 2017, Sam’s Club also consolidated all its private labels under one brand name, Member’s Mark — but the company has never credited Costco for doing this. 

According to retail industry experts, Kirkland Signature isn’t just a powerhouse brand — it’s also one of Costco’s sharpest tools at the negotiation table. 

For instance, when Costco decided to introduce diapers under the Kirkland Signature label, it approached the two giants of the category: Procter & Gamble, the makers of Pampers, and Kimberly-Clark, which produces Huggies. 

But here’s the catch: in Costco’s limited-SKU model, shelf space is precious. In most cases, only one national brand gets to sit beside Kirkland Signature in any category. So, when Kimberly-Clark came forward with better rates and more favorable terms, Costco made its choice. For years, it was just Huggies and Kirkland Signature that dominated the diaper aisle in Costco warehouses.

If Kirkland Signature is one half of Costco’s retail magic, then the membership program is the other half.

Membership Mania

In 2024, membership fees brought in $4.8 billion in revenue. This revenue is especially important because of its pure margin — there’s no cost of goods sold, no inventory to manage, and just high-margin, recurring income.  Additionally, Costco’s retention game is also rock solid. It boasts a renewal rate of 92.9% in the U.S. and Canada, 90.5% worldwide. 

According to Costco’s 2024 Annual Report, Costco’s total cardholder base has continued its steady climb, hitting 136.8 million in 2024 — up from 127.9 million the year before and 118.9 million in 2022. That’s nearly a 7% increase year-over-year and more than 15% growth over two years.

What’s even more interesting is the rise in Executive memberships, which reached 35.4 million in 2024, marking a 9.6% increase from 2023 and a 21.6% increase since 2022.

This was despite the increase in membership fees that Costco announced in September 2024. In September 2024, Costco raised membership fees for the first time in seven years. Gold Star, Business, and Add-On plans went up by $5 to $65, while the Executive Membership jumped $10 to $130 a year.

Interestingly, it's not just physical retail sales that are on an upward trend for Costco; its online retail is also catching up. 

In fiscal year 2024, global e-commerce sales grew by 16% from a sluggish 2023, with digital sales accounting for 7% of total net sales, according to Costco’s 2024 annual report. This momentum didn’t slow down in 2025. In the first 31 weeks of fiscal 2025, e-commerce sales rose by 16.8%.

Current State

Like many retailers, Costco isn’t immune to the ripple effects of tariffs. During the company’s second-quarter earnings call last month, CEO Ron Vachris made it clear that Costco is built to weather the storm. 

He emphasized that the company will “rise to the challenge by leveraging our global buying power, strong supplier relationships, and relentless innovation” to keep prices low and value high.

Addressing the uncertainty around tariffs, Vachris added:

Also facing hurdles is nothing new for Costco, in 202,1 when the world was undergoing a supply chain issue and a global shipping crisis, Costco privately rented at least three container ships and several thousand containers to keep up with demand.

In fact, Costco has been preparing for the tariffs for a while now. For example, back in December 2024, during an earnings call, CFO Gary Millerchip shared how the company is planning to handle rising costs. He said Costco will work closely with its vendors to manage the impact of tariffs, explore alternative sourcing options, and even scale back on underperforming products if needed. 

Additionally, a recent Financial Times report stated that, like Walmart, Costco is also discussing with suppliers in China to cut prices because of tariffs. 

Final words 

Like all retailers, Costco isn’t immune to the impending impact of tariffs and economic uncertainty. However, over the years, through its member-first pricing, limited markups, and curated product offerings, the company has built something far more valuable than mere scale—it has earned the trust and loyalty of millions of American shoppers.

When prices rise, the first instinct for most consumers is to seek out places that offer low prices and high value. And in uncertain times like this, what’s better than Costco? 

This newsletter was written by Shyam Gowtham

Thank you for reading. We’ll see you at the next edition!