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Costco doesn't do this as far as I'm aware. I think their only profit comes from their membership fees, they intend to break even on everything else. That does

Costco doesn't do this as far as I'm aware. I think their only profit comes from their membership fees, they intend to break even on everything else. That doesn't mean they are always the cheapest option, but they aren't messing with prices to gain customers and then making a profit, since they aren't pricing things to make a profit in the first place.

jonathanyc 8y ago
I didn’t know that Costco broke even on most sales— that was interesting to learn. It sounds like Costco also makes a profit of Kirkland Signature sales, though. I suppose if you didn’t like generic drugs you could apply a similar argument here. Costco’s loss leaders (e.g. the hot dogs) are also arguably instances of “messing with prices to gain customers.” https://www.investopedia.com/articles/investing/070715/costcos-business-model-smarter-you-think.asp https://www.investopedia.com/articles/investing/070715/costc...
- deleted 8y ago
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- mmt 8y ago
  > Costco’s loss leaders (e.g. the hot dogs) are also arguably instances of “messing with prices to gain customers.” Except the article was a bit confusing on this point: The biggest Costco loss leaders in America right now are rotisserie chicken, the hot dog & soda combo and gas. A Bloomberg article has calculated that Costco earns only $14 million in profit a year on its sale of 70 million chickens. How is something a "loss leader" if it makes a profit of "only" $14 million? However, as a consumer, I do agree with you in principle that they are messing with things, including pricing and placement of products, mostly to get people to buy more (possibly even to get customers in the doors), just to a lesser degree. OTOH, the magnitude of that lesser degree is so great that it makes a difference. I know I'm not always getting the best deal if I buy any particular item at Costco, but I can be reasonably confident I'm not paying a huge markup. In fact, I find Costco so reliable for fair pricing, I consider them my benchmark for seeing if other stores' discounts are really deals or just borderline scams like doubling the base price but offering an evergreen "sale" that's around 50% off. (Mostly only relevant to items with widely fluctuating prices or ones I buy so infrequently inflation is a factor).
quadrangle 8y ago
Last I read, memberships were like half their profit or something. It's certainly not like CostCo makes no more profit if people buy twice as much. Setting prices to that level would be insane. CostCo doesn't do weird pricing scheming, but they have higher-profit items and getting people in the stores with memberships does get people to buy more stuff there, even stuff people might have not bought at all otherwise. Don't get me wrong, CostCo does a better ethical and consumer-respecting business than most, but they DO profit on sales, it's just slim enough profit that they couldn't get by well without the member fees.
- nordsieck 8y ago
  > Last I read, memberships were like half their profit or something. It's certainly not like CostCo makes no more profit if people buy twice as much. Setting prices to that level would be insane. You're wrong. > Through two quarters of its fiscal 2017, Costco has reported $1.06 billion in income (profit). That number is slightly smaller than the $1.26 billion it collected in membership fees. > If you examine the company's sales, it brought in $56.59 billion in net sales with a merchandise cost of $50.21 billion and sales expenses of $5.92 billion. That's a small loss when it comes to actually selling goods, https://www.fool.com/investing/2017/05/05/how-costco-wholesale-corporation-makes-most-of-its.aspx https://www.fool.com/investing/2017/05/05/how-costco-wholesa...
  - quadrangle 8y ago
    Thanks for the update. While it may be true that they'd be losing money overall without the membership fees, I doubt they sell most products at a direct loss. There's overhead for managing everything, but they surely don't set things up so that each sale of a washing machine or patio furniture or whatever is actually a net loss. I'd be shocked if having all members increase their spending would decrease rather than increase CostCo profits.

jonathanyc 8y ago

I didn’t know that Costco broke even on most sales— that was interesting to learn. It sounds like Costco also makes a profit of Kirkland Signature sales, though. I suppose if you didn’t like generic drugs you could apply a similar argument here. Costco’s loss leaders (e.g. the hot dogs) are also arguably instances of “messing with prices to gain customers.” https://www.investopedia.com/articles/investing/070715/costcos-business-model-smarter-you-think.asp https://www.investopedia.com/articles/investing/070715/costc...

deleted 8y ago
[deleted]
mmt 8y ago
> Costco’s loss leaders (e.g. the hot dogs) are also arguably instances of “messing with prices to gain customers.” Except the article was a bit confusing on this point: The biggest Costco loss leaders in America right now are rotisserie chicken, the hot dog & soda combo and gas. A Bloomberg article has calculated that Costco earns only $14 million in profit a year on its sale of 70 million chickens. How is something a "loss leader" if it makes a profit of "only" $14 million? However, as a consumer, I do agree with you in principle that they are messing with things, including pricing and placement of products, mostly to get people to buy more (possibly even to get customers in the doors), just to a lesser degree. OTOH, the magnitude of that lesser degree is so great that it makes a difference. I know I'm not always getting the best deal if I buy any particular item at Costco, but I can be reasonably confident I'm not paying a huge markup. In fact, I find Costco so reliable for fair pricing, I consider them my benchmark for seeing if other stores' discounts are really deals or just borderline scams like doubling the base price but offering an evergreen "sale" that's around 50% off. (Mostly only relevant to items with widely fluctuating prices or ones I buy so infrequently inflation is a factor).

quadrangle 8y ago

Last I read, memberships were like half their profit or something. It's certainly not like CostCo makes no more profit if people buy twice as much. Setting prices to that level would be insane. CostCo doesn't do weird pricing scheming, but they have higher-profit items and getting people in the stores with memberships does get people to buy more stuff there, even stuff people might have not bought at all otherwise. Don't get me wrong, CostCo does a better ethical and consumer-respecting business than most, but they DO profit on sales, it's just slim enough profit that they couldn't get by well without the member fees.

nordsieck 8y ago
> Last I read, memberships were like half their profit or something. It's certainly not like CostCo makes no more profit if people buy twice as much. Setting prices to that level would be insane. You're wrong. > Through two quarters of its fiscal 2017, Costco has reported $1.06 billion in income (profit). That number is slightly smaller than the $1.26 billion it collected in membership fees. > If you examine the company's sales, it brought in $56.59 billion in net sales with a merchandise cost of $50.21 billion and sales expenses of $5.92 billion. That's a small loss when it comes to actually selling goods, https://www.fool.com/investing/2017/05/05/how-costco-wholesale-corporation-makes-most-of-its.aspx https://www.fool.com/investing/2017/05/05/how-costco-wholesa...
- quadrangle 8y ago
  Thanks for the update. While it may be true that they'd be losing money overall without the membership fees, I doubt they sell most products at a direct loss. There's overhead for managing everything, but they surely don't set things up so that each sale of a washing machine or patio furniture or whatever is actually a net loss. I'd be shocked if having all members increase their spending would decrease rather than increase CostCo profits.