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Costco has barely any markup on the items they sell (sometimes absolutely 0 markup). They make up for it in membership fees.

rahimnathwani 3y ago
Costco's median gross profit margin is about 12%. (Walmart's is about double that.) Annual inventory turns: about 12x. (1.5x as fast as Walmart.)
- lotsofpulp 3y ago
  Why is gross profit margin relevant here? Are the other expenses at Costco not related to their business? Their profit margin is 2.5% or less for 15+ years. Seems more accurate to use that number, which is also nearly equal their membership cost * number of memberships.
  - rahimnathwani 3y ago
    "Why is gross profit margin relevant here?" I replied to a comment that said Costco has "barely any markup". Markup and gross profit measure exactly the same thing. If you know one, you can calculate the other. A gross profit margin of 12% means Costco's markup is over 10%. (Or 8% to 9% if you don't count membership fees.) This is low, but it's not nothing.
- xethos 3y ago
  I still don't see the relevance - couldn't the higher gross profit margin be accounted for by having a markup of only slightly above zero, but supplemented by membership fees?
IAmGraydon 3y ago
Not sure why this is getting downvoted. It’s 100% true. Their profits primarily come from membership fees. I believe their markup is capped at a maximum of 15%.
- rahimnathwani 3y ago
  "Their profits primarily come from membership fees." I've seen this quoted repeated but it's not a useful lens. While Costco's annual revenue from membership fees is approximately equal to Costco's annual net profit, memberships are only valuable because of the additional services and products Costco offers, which also incur costs and contribute to their overall profits. So it makes no sense to consider Costco memberships a product with close to 100% gross margin, which is what people normally mean when they say profits primarily come from membership fees.

rahimnathwani 3y ago

Costco's median gross profit margin is about 12%. (Walmart's is about double that.) Annual inventory turns: about 12x. (1.5x as fast as Walmart.)

lotsofpulp 3y ago
Why is gross profit margin relevant here? Are the other expenses at Costco not related to their business? Their profit margin is 2.5% or less for 15+ years. Seems more accurate to use that number, which is also nearly equal their membership cost * number of memberships.
- rahimnathwani 3y ago
  "Why is gross profit margin relevant here?" I replied to a comment that said Costco has "barely any markup". Markup and gross profit measure exactly the same thing. If you know one, you can calculate the other. A gross profit margin of 12% means Costco's markup is over 10%. (Or 8% to 9% if you don't count membership fees.) This is low, but it's not nothing.
xethos 3y ago
I still don't see the relevance - couldn't the higher gross profit margin be accounted for by having a markup of only slightly above zero, but supplemented by membership fees?

IAmGraydon 3y ago

Not sure why this is getting downvoted. It’s 100% true. Their profits primarily come from membership fees. I believe their markup is capped at a maximum of 15%.

rahimnathwani 3y ago
"Their profits primarily come from membership fees." I've seen this quoted repeated but it's not a useful lens. While Costco's annual revenue from membership fees is approximately equal to Costco's annual net profit, memberships are only valuable because of the additional services and products Costco offers, which also incur costs and contribute to their overall profits. So it makes no sense to consider Costco memberships a product with close to 100% gross margin, which is what people normally mean when they say profits primarily come from membership fees.