I am a Costco member for 17 years now since the time it was Price Club in San Diego. They offer great service, take everything I don’t like back and have one of the best prices around. How do they do it – by using their enormous buying power to squeeze every penny out of their vendors and apply their own rule that their gross margin should not exceed 10%. Those two simple rules gave Costco enormous popularity and huge and steady revenue growth.
Few days ago I purchased gas at $2.97 at Costco just to realize that several gas stations sell it at $2.95. I ran to my computer to check Costco financilas and sure enough the gross margin has climbed to 12.44% (based on trailing 12 mo. results). Still not bad, but not where it used to be at 10% for many years.
As far as getting it from the vendors, Costco has loosen their grip there as well. I find often that their prices are not the best on variety of items. Also many reputable brands are not available at Costco for the reason that they will not negotiate their prices lower.
I am still hard pressed to find a better retailer and I (as many, many others) remain a Costco fan, but the shadow of a doubt lays between me and Costco now. Maybe it is time for the next entrepreneur to start the next Price Club like Sol Price did in San Diego 2 decades ago.