May 26, 2010

Inside Costco: Secrets of America's Favorite Stores

I am a Costco member (there are over 54 million in the US), but don't make periodic shopping trips to Costco. When we do visit Costco we stock up on plain Yogurt and Cheerios ! I have been thinking about owning some COST.

From a business perspective, I have noticed that Costco always strives to provide excellent experience to its members. For example, even on extremely busy weekends (when aisles are packed with shopping carts) checkout lines move fast unlike other retailers. Moreover, their books seem pretty good viz-a-viz other top retailers: low Debt to Equity ratio, high inventory turnover, and decent gross margins (net sales – merchandise costs / net sales) at 12% .

From a supply chain perspective I find their high inventory turns (12.3) and the # of SKUs Costco carries (under 4000 compared to a typical Walmart which carries 100,000) very comforting.

As a marketer, I am impressed that they rely less on traditional channels and more on WOM.