The No Stupid Questions Thread

[SFBadger96]

It's been a long time since I worked on a case about this stuff, but as I recall, Costco, more than most retailers, maintains a low, but steady level of profit margin. It's true that they make a significant portion of their profits on membership dues, but they also maintain their profit margins, low though they may be, better than most retailers. With the possible exception of the $1.50 hot dog, Costco does not sell (even clearance items) at a loss. So, if you are spending enough money to do better than breaking even on your executive membership (me, too, by the way), you are spending enough money there to ensure they are more than breaking even on you.

ALSO, I bet they have pretty good tracking on how many people do better than breaking even on the executive membership, and I bet they price it with that in mind.

[Cincydawg]

Costco does make a profit on each item sold (usually), though a lot of their profit comes from membership fees.  While they might lose on customers like you, they win on a lot of others, including some folks who shop rarely or never, there are quite a few of that type.  They are brutal negotiators on price, even with larger companies like where I worked.  And if you don't play ball, they drop you, which is devastating.  You'll notice they usually carry two brands for many staples, Kirkland, their own, which often is very good, and then the leading brand.  Look at what kinds of toilet paper they offer, two brands.  Diapers, two brands.  I was around when they dropped out brand of diapers, it resonated heavy.

They get incredible deals from producers and pass them along efficiently.  They also pay their employees very well which shows up in customer service.  We really like shopping there.  We go in for maybe ten items and come out with 50.  Their wine prices are excellent, unfortunately.

My financial advisor didn't want to buy stock in Costco because they are so expensive, but when I took over I bought some, and it has done very well for me.+

[betarhoalphadelta]

It's been a long time since I worked on a case about this stuff, but as I recall, Costco, more than most retailers, maintains a low, but steady level of profit margin. It's true that they make a significant portion of their profits on membership dues, but they also maintain their profit margins, low though they may be, better than most retailers. With the possible exception of the $1.50 hot dog, Costco does not sell (even clearance items) at a loss. So, if you are spending enough money to do better than breaking even on your executive membership (me, too, by the way), you are spending enough money there to ensure they are more than breaking even on you.

ALSO, I bet they have pretty good tracking on how many people do better than breaking even on the executive membership, and I bet they price it with that in mind.

I think I've also read that the rotisserie chicken is a loss leader. But as you point out, it's not in their general practice to sell at a loss. 

I also think there might be a portion of it that is similar to Amazon Prime... When I'm looking for something, I rarely aggressively price-shop Costco against someone else. If Costco has it, I buy from them. Same as when I'm looking for something online, Amazon is my first stop. It's only in rare cases that I'm looking around a ton. 

So I suppose even if their margins on me are slim, they're getting me in the store a LOT more when I know their prices and quality are generally good, AND I'm getting that 2% back, than they might if I were a standard member. 

[SFBadger96]

I also think there might be a portion of it that is similar to Amazon Prime... When I'm looking for something, I rarely aggressively price-shop Costco against someone else. If Costco has it, I buy from them. Same as when I'm looking for something online, Amazon is my first stop. It's only in rare cases that I'm looking around a ton.

Same: I know the quality is likely to be at least good and I know the price will be at least good. My time is worth more to me than beating Costco's prices for a product that hopefully is as good or better.
My kids and wife make fun of me often for my golf situation. When golfing it is often the case that the only articles of clothing I'm wearing that didn't come from Costco are my shoes and my hat; my driver and my wedges are from Costco, as are my glove and my balls, my sunglasses, the energy bars in my bag, and I drove there in a car I purchased using Costco's car buying service. 

[betarhoalphadelta]

Same: I know the quality is likely to be at least good and I know the price will be at least good. My time is worth more to me than beating Costco's prices for a product that hopefully is as good or better.
My kids and wife make fun of me often for my golf situation. When golfing it is often the case that the only articles of clothing I'm wearing that didn't come from Costco are my shoes and my hat; my driver and my wedges are from Costco, as are my glove and my balls, my sunglasses, the energy bars in my bag, and I drove there in a car I purchased using Costco's car buying service.

Damn. You're even more committed than I am! For me it's just the glove, balls, and the energy bar 

I bought the driver but it didn't outperform mine, so I gave it to my son. He also plays the wedges. I'm too much of an oversized gorilla to play most off-the-rack clubs, and one thing Kirkland doesn't do is "customization"--THAT breaks their business model lol...

[utee94]

Costco also has very generous return policies.