--- title: "Costco, the Supermarket Where Gross Margins Cannot Exceed 14%, Is Coming!" description: "Ye Guofu, founder of Miniso, once provocatively said that if Costco came to mainland China, it would wipe out the current retail industry. Costco, the supermarket where gross margins above 14% require CEO approval, is finally entering China, with its first store planned for Shanghai." author: "New Distribution" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2017-09-15" language: "en" canonical: "https://xinjignxiao.com/en/articles/costco-the-supermarket-where-gross-margins-cannot-exceed-14-is-coming-8f1f2a00/" markdown: "https://xinjignxiao.com/en/articles/costco-the-supermarket-where-gross-margins-cannot-exceed-14-is-coming-8f1f2a00.md" original_source: "https://mp.weixin.qq.com/s/ZIsDUki-nZirj2eitFT0JQ" translation: "https://xinjignxiao.com/zh/articles/costco-%E9%82%A3%E4%B8%AA%E6%AF%9B%E5%88%A9%E7%8E%87%E4%B8%8D%E8%83%BD%E8%B6%8514-%E7%9A%84%E8%B6%85%E5%B8%82%E6%9D%A5%E4%BA%86-8f1f2a00.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/costco-the-supermarket-where-gross-margins-cannot-exceed-14-is-coming-8f1f2a00/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Costco, the Supermarket Where Gross Margins Cannot Exceed 14%, Is Coming! > Ye Guofu, founder of Miniso, once provocatively said that if Costco came to mainland China, it would wipe out the current retail industry. Costco, the supermarket where gross margins above 14% require CEO approval, is finally entering China, with its first store planned for Shanghai. Ye Guofu, founder of Miniso, once provocatively said: "Costco just hasn't come to China (mainland). If it does, the current retail industry in China will all die." COSTCO, also known as Good Wholesale, the supermarket where gross margins exceeding 14% require CEO approval, the supermarket that is a formidable rival to Walmart's Sam's Club in the U.S., and the supermarket ranked 36th in the 2017 Fortune Global 500, is finally coming to China. **Recently, according to China Business News, Costco, the second-largest supermarket chain in the U.S., will open a store in Shanghai, with the first location possibly in Pudong or Hongqiao.** **Its extraordinary business practices will shock domestic supermarkets.** **Who is COSTCO?** Costco was born more than 20 years after Walmart. In 1983, when Walmart was already the world's largest retail enterprise, the first Costco store had just opened. By 2014, Costco had become the third-largest retailer in the U.S., and in 2015, it was the second-largest retailer globally, becoming a strong competitor to Walmart. As of July 1, 2016, Costco had a total of 705 stores across the U.S., Canada, the UK, Japan, Taiwan, and other regions (but not yet mainland China). **On the evening of July 20, 2017, the Fortune Global 500 list was announced, with Costco ranking 36th globally with revenue of $118.719 billion.** **A Concept That Will Astonish You** - The gross margin on products sold in stores is only 1% to 14%. - Hidden in every Costco worldwide is the mysterious number 14, meaning the maximum gross margin on any priced product cannot exceed 14%. If gross margin exceeds 14%, it requires the chairman's signature. With a gross margin close to single digits, after covering expenses and taxes, net profit is almost zero. Clearly, Costco "does not rely on selling goods to make money." Moreover, this is not a passive situation due to intense competition; it is an active decision to keep gross margins at a level that is essentially unprofitable. **Not Relying on Selling Goods, but on Services** Costco's memberships are divided into non-executive and executive memberships. In the U.S. and Canada, the annual fee for non-executive members is $55, and for executive members it is $110. Compared to non-executive members, executive members also enjoy a 2% rebate on annual purchases and other benefits. Costco's profit is not directly related to product purchase prices, selling prices, or sales volume, but only to the number of members. Membership fees are the fixed intermediary service fees Costco charges each customer annually. **Costco's annual membership fees almost equal its entire annual net profit.** In 2015, Costco's total paid members exceeded 81.03 million, with executive members (who receive 2% cash back on purchases, with an annual fee of $110, compared to $55 for regular members) accounting for about 40%. Annual membership fee revenue was approximately $2.5 billion, and the membership renewal rate reached 91% in the U.S. and Canada, and 87% globally. It's frightening to think about such trust and customer loyalty. **Ultra-Low SKU: Not Pursuing Variety but Rationality** Costco's SKU (stock keeping unit) count is astonishingly low, at fewer than 4,000, around 3,700 SKUs. This means that in each small product category, there are only one or two choices. Costco selects products it believes have "hit" potential. A direct positive effect of low SKU is that Costco's inventory turnover period is only 29.5 days, lower than Walmart's 42 days and Target's 58 days. The shortened inventory cycle improves capital efficiency and reduces operating costs to some extent. **Services That Redefine Your Worldview** **"Return Policy Is Absolutely Crazy"** Costco stipulates that except for electronics like computers, digital cameras, and projectors, which must be returned or exchanged within 90 days of purchase, other products have no return deadline. In other words, customers can return or exchange items at any time without a reason, and they don't need to provide a receipt. Costco's no-questions-asked return policy has gone viral on social media. For example, people have successfully returned rotten peaches, wilted potted plants, chocolate boxes with only one piece left, and clothes bought years ago. No matter your reason, whether you have a receipt, or how long it's been, as long as there's a purchase record on your Costco membership card, you can return it. Some netizens joke that at Costco, you can eat free samples until you're full, get new shoes for years by constantly returning and exchanging, and get free replacements for Michelin tires after driving 1,000 kilometers. With just a Costco membership card, you can support yourself. **"Costco Is Always on Your Side"** - "I'm on your side, not on the side of factories and suppliers!" - "I do my utmost to select high-quality products for members at the lowest prices and pass the savings back to my members." - The store has nearly 30 tasting stations year-round, where employees proactively offer samples of various products. By the time you finish shopping, you won't need lunch or dinner because your stomach is already full. - "I do my utmost to ensure quality. Even if you've eaten half a box of cookies, if you're not satisfied, you can return them for a refund at any time." - It has its own gas station, where gas is 10-20 cents cheaper per gallon than the market, exclusively for members. - Tires purchased at Costco are not only cheaper but also come with free lifetime air, balancing, and puncture repair. **Costco Quick Facts** - In the 2015 fiscal year, product sales lost $160 million, while membership fees brought in $2.5 billion. - Carefully selects around 4,000 SKUs most popular with the middle class, covering all categories. - Simple design, warehouse-style open shelving, mainly large-pack products. - Has surpassed AutoNation to become the largest car seller in the U.S. - The outlet with the highest pizza sales in the U.S. - Its private label, Kirkland, is the most popular health brand in the U.S. - Costco's maximum gross margin is 14%, with an overall gross margin of about 10%, while Walmart's average is 23% (after operating expenses and taxes, net profit on products is almost zero). - Hot dog and soda combo sells for $1.50, unchanged for 30 years, and the soda is refillable. - Sells 60 million rotisserie chickens at $4.99 each annually, never raising the price. - Costco is the cheapest pharmacy in Canada. **Source: Retail Circle, Hushu Net, New Food Review** **The 3rd (CFIC) China FMCG + Internet Conference** will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting **1,000+ distributors, 500+ brand owners, 200+ founders of B2B platforms, and 100+ investment and financing institutions** to explore a new chapter of cross-industry integration! **Registration is now open. Long-press the QR code below or click "Read Original" to register. Early bird tickets before September 17 enjoy a 30% discount!** Add friend and note "Conference Registration" Click the links below to review the highlights of the 1st and 2nd FMCG + Internet conferences: 2016 "FMCG + Internet" Summit Forum 2017 (2nd) China FMCG + Internet Conference Click the links below to review the highlights of the 1st and 2nd FMCG + Internet conferences: [2016 "FMCG + Internet" Summit Forum]() -END- --- ## Copyright and AI use This article is sourced from New Distribution. 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