...the over 75 million “mainlining” Costco members (and growing at a high single digit percentage rate annually), with an average annual income of $100,000, paying a $55 annual membership fee (or $110 for an executive level membership). Three million members a day enter Costco’s stores to get their fix.
Yes, you read those numbers right. In today’s over-stored and over-stuffed retail environment, the equivalent of almost one-fifth of the U.S. population is paying for the privilege to shop at a particular store. And this is not a one-off, let’s-see-what-it’s-like kind of visit. The renewal rate is a whopping 90 percent each year. I guess that captures the power of an addict’s behavior.
Not only is 80 percent of Costco’s gross margin and 70 percent of its operating income derived from its Costcoholics’ membership fees, Costco collects most of its profits 12 months in advance, not at the eleventh hour of the fiscal year like most other retailers.[/quote]
A good about Costco is that they have a rule that limits their profit margins to a small number. Investors have been urging them to raise prices and increase margins, but they have resisted for 40+ years...They still sell $1.50 hotdogs.
This is why they try to make money from their memberships since they aren't making much on everything they sell. Also, their warranty for stuff is pretty much top notch. They changed electronics due to people abusing it, but most other items still can be returned without much, if any hassles.
Amazon is trying to do this with their Prime, but if you check prices, you'll notice that Amazon prices are pretty bad now most of the time...Also, returns AREN'T free for a lot of items and service has suffered as they try to start making money (counterfeit items, poor packing, etc...)
They also overprice their MSRP for a lot of products (to make it look cheaper (greater percent off)) and purposely delay shipment of items if you aren't a prime member.
Sometimes, prime, you also have to "wait" while they process your order before 2 day ship...
Amazon also has a history of undercutting rivals till they are dead, then raise prices after they are gone. Or they buy whoever they can't beat...
