Costco - Cheap for customers, expensive for investors?

[Sijoittaja-alokas]

I started a thread for this company because it comes up so often on various investment and finance sites.

Costco is a US-based membership retail chain that offers its customers a wide selection of products in bulk at competitive prices. The company is particularly known for its no-frills concept, meaning a simple store + service experience where volume sales and small margins enable affordable prices. The company is one of the world’s largest retailers of, for example, meat products, organic foods, and wines, and it attracts millions of customers worldwide.

Originally, Costco focused mainly on business customers, but its business model quickly expanded to consumers as well. Today, the company has nearly a thousand warehouse stores in several countries, but the majority of its operations are still in North America. Costco’s own brand, Kirkland Signature, has established itself as a high-quality and affordable alternative to many brands, or so it is said.

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Investor’s Thoughts

Costco’s strengths include its rise as a significant player in the retail sector by offering members quality products in bulk at affordable prices. The company’s success is supported by an efficient distribution network, its own popular brand, and loyal long-term customers.

Its strengths also include specialization in sustainable development and a profitable and recurring membership fee model. Weaknesses include a limited selection, meaning customers are forced to shop elsewhere, relatively slow e-commerce development compared to other players, and overall too great a dependence on the North American market.

Growth opportunities include expansion into new markets, as well as digital marketing and the development of member benefits. Threats include, for example, intensifying competition, changing consumer habits, and economic uncertainties. I was still wondering about the statement that e-commerce is somewhat behind in its development… what will happen when many others have very advanced operations in that regard (the word AI hasn’t even been used much ).

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A Little Reading

It would be hard to call this cheap…

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Finally, a concise and topical overview of the company.

https://x.com/InvestingVisual/status/1931716488693481689

[Ilkka6]

On the Wall Street Journal channel, a month or two ago, there were two videos about Costco’s own Kirkland brand (a bit like Pirkka and others)

“Why Costco Went All in on Kirkland — and How It Paid Off | WSJ Case Study” (~10 min)

Why Costco Went All in on Kirkland — and How It Paid Off | WSJ Case Study

“Costco CEO Breaks Down How a Kirkland Product Gets Made | WSJ” (~9 min)

Costco CEO Breaks Down How a Kirkland Product Gets Made | WSJ

Costco is also known for its hot dogs, whose price has been insistently kept the same since 1984.

“Craig Jelinek, Sinegal’s successor as CEO, revealed in 2018 that he approached Sinegal in 2013 about raising the price of the hot dog combo to $1.75 (equivalent to $2.40 in 2024, saying, “Jim, we can’t sell this hot dog for a buck fifty. We are losing our rear ends.” According to Jelinek, Sinegal replied, “If you raise the effing hot dog, I will kill you. Figure it out.”” (Costco hot dog - Wikipedia )

[elsonico]

As a Costco customer since 2010, I can say that it’s quite questionable whether it’s cheap for the consumer either. The bill never stays under $200. It’s an excellent concept, though, and I always end up using it when I’m in North America.

Costco pays its employees good wages and also stands out from Walmart with its quality products.

From an investor’s perspective, I can’t really figure out what strategy would now support Costco’s growth. Continuous expansion in North America? At least in Toronto, there are already so many stores that I can’t imagine where more would come from. I didn’t know that No Frills is part of Costco.

I could imagine that if growth is based on expansion outside of big cities, then growth will continue along the same linear path as it has until now.

[massimo]

How would you see Costco in relation to Target? Target is quite affordable right now, but the quality is completely different.

[elsonico]

DISCLAIMER: My perspective is Canadian, and I have only visited the USA for work trips and as a tourist. Several dozen times, though.

Target did come to Canada and was an anticipated guest. That trip didn’t last long. In Canada, Target faced direct competition particularly from Shoppers Drug Mart, London Drugs, and even Rexall. I don’t know the US side as well, and whenever I visited the USA, I always headed to Target and wished it would come to Canada. Until it did, but not with as comprehensive a selection, and the prices were in a completely different league.

I don’t think Target has similar competition on the US side. On the other hand, Walmart is more on Target’s turf than Costco’s.

I certainly don’t dare to give any investment advice. I’d guess Costco is a safer bet because it engages customers very effectively. Membership is either through a paid basic-level annual fee or an executive membership, which, if I recall correctly, gives 4% cash-back on Costco purchases, which quickly covers the cost of the executive membership. Additionally, you get 2% cash-back on gas and at least 1% on purchases with a Costco credit card, no matter where you shop.

Even though I haven’t lived in Canada permanently for six years, I’ve kept my Costco membership because I always accumulate at least $30 in cash-back annually, even if I just pop in. That says something about how effectively Costco engages its customers.

[Sijoittaja-alokas]

Here’s an article from SalkunRakentaja about how The Charlie has found its winning stocks. Costco is used as an example, although it should be remembered that the company’s valuation is different now, etc.

He specifically mentions Costco’s strong competitive position, high-quality personnel system, and the company’s owned real estate portfolio, all of which reinforced his view of the company’s long-term success potential.

Miten sijoittaja löytää voittajaosakkeet? Näin vastaa sijoituslegenda Charlie...

[Sijoittaja-alokas]

Costco’s June sales show a strong improvement year-over-year

https://x.com/StockMKTNewz/status/1943041920596316367

[Sijoittaja-alokas]

Here’s a comparison of Costco membership fees with Walmart. Walmart offers more business options in this area than Costco.

https://x.com/fiscal_ai/status/1956717623955325087

[Sijoittaja-alokas]

The article below explains how Costco is rapidly growing its membership and opening dozens of new stores annually, both in the United States and globally.

It has succeeded in attracting younger customers in particular with its trendy products, social media phenomena, and easy digital services, even though e-commerce is still a smaller part of its business.

Member loyalty is evident in crowded “warehouse club stores,” where bulk purchases are complemented by sushi portions, gold bars, and even affordable clothing. Costco stands out from competitors by combining everyday savings with surprising shopping finds.

More on these and other topics can be found via the link below.

"Key Points

• Costco, Sam’s Club and BJ’s are all opening new locations, as more and younger U.S. consumers sign up for warehouse club memberships.
• High inflation “brought the club channel more and more into focus,” said Bobby Griffin, a consumer analyst at equity research firm Raymond James.
• Yet faster digital options, eye-catching brands and low-priced meals like sushi have also drawn in Gen Z and millennial consumers."

https://www.cnbc.com/2025/09/20/costco-sams-club-and-bjs-open-new-stores-and-gain-members-.html

[Sijoittaja-alokas]

Costco reported a strong quarter; earnings and revenue exceeded expectations and grew by double-digit percentages from the previous year.

Particularly strong growth was seen in membership fees, which rose significantly more than analysts’ estimates. Operating profit and net income improved, and the company’s cash reserves also grew considerably.

Comparable sales grew slightly slower than expected overall, but on the other hand, excluding currency effects and fuel, growth exceeded expectations. In the United States, growth narrowly missed forecasts, but then in Canada and internationally, development was strong. E-commerce continued double-digit growth, which reinforced the overall picture of steady and diversified performance.

https://x.com/CmgVenture/status/1971311333447795039

Here’s another cool data visualization:

https://x.com/EconomyApp/status/1971311122155528336

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Company’s Own Materials

[Sijoittaja-alokas]

Costco’s warehouse count has grown from 795 to 914 in four years. Of these, 629 are located in the United States and Puerto Rico, then 110 in Canada, and 175 elsewhere in the world.

Quite steady growth:

https://x.com/StockMKTNewz/status/1971949353242972388

[Sijoittaja-alokas]

Here’s a tweet about how Costco started selling gold bars in 2023, and since then prices have more than doubled.

Sales are already $200 million a month, and according to the tweet, gold has become the most profitable asset class of the 21st century with an annual return of over 11 percent.

https://x.com/wallstengine/status/1979603116741054479

[Ilkka6]

Video about Costco’s unique operating model. Duration 15 min.

• Good salaries, flat organization, and low employee turnover (cf. Walmart as a contrast)
• As a wholesaler, it only sells bulk packages; for customers, a visit to Costco is a significant event to mark on the calendar
• Local restaurants and smaller shops resell products bought from Costco

[Sijoittaja-alokas]

Costco sued the Trump administration to ensure it could receive tariff refunds if the Supreme Court later overturns Trump’s much-celebrated global tariffs. The company did not disclose how much it had spent on tariffs, but it fears losing its right to a refund because customs authorities refused to extend the deadlines.

Costco joined other companies that have challenged Trump’s use of executive power regarding tariffs.

https://www.investing.com/news/stock-market-news/costco-sues-trump-administration-over-tariff-refund-eligibility-4384393

[Sijoittaja-alokas]

The company’s revenue grew briskly in the first quarter, and earnings improved slightly compared to the previous year. It seems to have performed quite well even relative to expectations; on the other hand, the earnings figures were also affected by a tax benefit from stock-based compensation.

Core business has clearly strengthened, as seen in the increased sales. This suggests that demand has remained at a good level and the cost structure has been kept in check.

https://x.com/earnings_guy/status/1999226574483136802

https://x.com/EconomyApp/status/1999232317739745636

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The company’s own materials

[Sijoittaja-alokas]

The article below explains that Costco is seeking smoother operations in its warehouses with small but significant changes. One example is that Executive members can now shop earlier, which reduces congestion and shortens the duration of the visit. At the same time, more flexible payment methods and price protection reinforce the feeling that the company wants to save the customer’s time and money, thus aiming to strengthen the service experience.

The change is not just a benefit for a few, but generally balances the customer flow throughout the day; as the peak load eases, shelves stay in better condition and checkout lines shorten for those arriving later as well.

According to the article, it is a matter of fine-tuning where efficiency improves without major investments or, for example, compromising the core of the brand.

MSN