30-Second Explanation
Costco is not simply a supermarket with giant packages.
Its business model is a connected system:
Annual membership
↓
Large, committed member base
↓
High shopping frequency and sales volume
↓
Buying power with suppliers
↓
Limited selection + large purchase quantities
↓
Low operating and handling costs
↓
Low merchandise prices
↓
Member savings
↓
High renewal
↓
Membership revenue + repeat traffic
↺Costco says it carries fewer than 4,000 active SKUs per warehouse in its core business, far fewer than most broadline retailers. It buys most merchandise directly from suppliers, uses cross-docking depots, keeps warehouses intentionally simple, and tries to turn inventory quickly. [S1]
The membership model is not a side program.
Costco's 10-K says membership is integral to the business and profitability because it reinforces loyalty and provides continuing fee revenue. [S1]
At the end of Q3 fiscal 2026, Costco reported:
- 82.9 million paid memberships;
- 148.5 million cardholders;
- 92.2% renewal in the U.S. and Canada;
- 89.7% renewal worldwide. [S4]
The result is a retailer whose advantage comes less from having the widest assortment and more from making a smaller assortment move through the system at extraordinary volume.
How Costco Actually Works
A simplified operating map looks like this:
Costco's 2025 10-K makes the working-capital effect unusually explicit: the company says it often sells inventory before it is required to pay suppliers, while still sometimes taking early-payment discounts. [S1]
That happens because the model is designed around rapid inventory turns.
If merchandise sits in a warehouse for months, the economics change.
If a selected item sells very quickly across hundreds of warehouses, Costco can:
- buy a large quantity;
- spread operating costs over more sales;
- replenish efficiently;
- convert inventory into cash quickly.
This makes merchandising discipline a financial mechanism, not merely a store-layout preference.
What Costco Does
Curated merchandise retail
Costco sells a wide range of categories but deliberately narrows the number of choices within those categories.
Core merchandise includes:
- foods and sundries;
- non-foods;
- fresh foods.
In fiscal 2025 those categories generated:
| Category | FY2025 net sales |
|---|---|
| Foods and Sundries | $109.564B |
| Non-Foods | $71.190B |
| Fresh Foods | $37.988B |
| Warehouse Ancillary and Other Businesses | $51.170B |
| Total net sales | $269.912B |
Source: FY2025 Form 10-K. [S1]
Membership
Costco Membership turns access to the warehouse into a recurring paid relationship.
Members are not just shoppers.
They are also subscribers to the retail system.
Private label
Kirkland Signature gives Costco more control over:
- product specifications;
- quality;
- sourcing;
- packaging;
- price positioning.
Costco says Kirkland products generally have lower prices than national brands while generally earning higher margins. [S1]
Warehouse operations
The Costco Warehouse is designed for operational efficiency rather than conventional retail presentation.
The average warehouse was about 147,000 square feet in 2025. [S1]
Costco's own filing says the warehouses are not elaborate because shoppers are primarily attracted by merchandise quality and low prices.
Ancillary businesses
Costco uses adjacent businesses to create more reasons for members to visit and renew.
Examples include:
- Costco Gas;
- pharmacy;
- optical;
- food court;
- hearing aids;
- tire installation.
Gasoline represented approximately 10% of 2025 net sales and was available at 747 gas stations at year-end. [S1]
Other member businesses
Costco also operates:
- e-commerce;
- Costco Business Centers;
- Costco Travel;
- delivery and other digital services.
These businesses expand the value of membership without changing the basic economic promise: member value first.
Products, Platforms & Services
Costco Membership
Costco Membership is the access and loyalty layer of the business.
Why it exists
To create recurring fee income, strengthen loyalty and make low merchandise margins more sustainable.
Kirkland Signature
Kirkland Signature is Costco's exclusive private label.
Why it exists
To create products that Costco can specify around its own quality and value targets instead of relying entirely on national-brand economics.
Costco Warehouse
Costco Warehouse is the core retail format.
Why it exists
To move a limited number of products at very high volume with low handling and presentation costs.
Costco Business Center
Costco Business Center adapts the membership model toward commercial customers such as foodservice operators and offices.
Why it exists
Costco's historical roots include business purchasing. Business Centers let the company serve business demand with more tailored inventory and delivery.
Costco Travel
Costco Travel is a member-only travel service.
Why it exists
To apply Costco's buying and curation logic to high-value services beyond the warehouse.
Costco Gas
Costco Gas is a member-oriented fuel business.
Why it exists
To give members another recurring reason to visit Costco and reinforce the perception that membership saves money on frequently purchased essentials.
The Costco Value Stack
Costco does not have a technology stack comparable with a software company.
Its competitive stack is operational.
The order matters.
Costco's digital products are being added on top of a physical operating model rather than replacing it.
In fiscal 2025, e-commerce was about 7% of total net sales and digitally-enabled sales about 10%. [S1]
By fiscal 2026, digitally-enabled comparable sales were growing far faster than total comparable sales. [S2][S3]
Who Uses Costco?
Households
The largest group is households using Costco for:
- food;
- household consumables;
- fresh products;
- general merchandise;
- gas;
- pharmacy and optical;
- travel and services.
Gold Star membership is designed for individual / household use.
Small businesses
Costco's warehouse-club roots began with business customers.
Business members can purchase for resale and add affiliate cardholders. [S7]
Small businesses can use Costco for:
- foodservice;
- office supplies;
- commercial equipment;
- resale merchandise;
- fuel;
- business delivery.
Executive members
Executive members pay more for membership but receive additional benefits, most importantly a 2% reward on qualified purchases.
At the end of Q3 2026, Costco reported 41.2 million Executive memberships, and Executive members accounted for about 75% of worldwide sales in the quarter. [S4]
That makes Executive penetration commercially important far beyond the number of members alone.
Who Pays Costco?
Costco receives money through several channels.
Merchandise buyers
Members pay Costco for merchandise.
This is by far the largest revenue stream.
For fiscal 2025:
Net sales
$269.912B
Membership fees
$5.323BMembership fees are economically important, but Costco is still fundamentally a retailer with enormous merchandise sales. [S1]
Members paying annual fees
Business customers
Business members and Business Center shoppers buy inventory and supplies for operating companies and, where allowed, resale.
Ancillary-service users
Members also pay Costco for products and services including:
- gasoline;
- travel;
- pharmacy-related merchandise;
- optical products;
- tires;
- other services.
Some services involve third-party partners, so the accounting model can differ by product.
How Costco Makes Money
The model should not be simplified to:
Costco sells goods at cost and makes all its profit from membership.
That is not what the financial statements say.
Costco earns merchandise gross profit and membership-fee income.
In fiscal 2025:
- net sales were $269.912B;
- merchandise costs were $239.886B;
- gross margin was $30.026B;
- membership fee revenue was $5.323B. [S1]
The useful business model is:
Low merchandise margins
+
Very high sales volume
+
Rapid inventory turnover
+
Low operating cost per sales dollar
+
Recurring membership fees
+
Ancillary traffic and private label
=
Costco economicsWhy Costco can accept lower merchandise margins
Costco says its volume purchasing, distribution efficiencies, reduced handling and rapid inventory turnover allow it to operate profitably at significantly lower gross margins than most retailers. [S1]
Why membership changes the retail equation
Membership fees help offset operating costs and create recurring revenue before considering what a member buys during the year. [S8]
Why turnover matters
Costco often sells inventory before payment to suppliers is due. [S1]
That can reduce the amount of working capital tied up in merchandise.
Why the company does not maximize short-term prices
Costco says it seeks to preserve pricing authority: the member perception that Costco consistently offers competitive value. [S1]
That means the company can choose to hold prices or lower them even when doing so pressures margin in the short term.
What Costco Depends On
Suppliers
Costco buys most merchandise directly from suppliers.
It depends on:
- product availability;
- quality;
- large-volume supply;
- negotiating relationships;
- geographic diversification.
The company says no single supplier provides a significant portion of total merchandise. [S1]
Members
The membership model only works if members:
- perceive value;
- shop repeatedly;
- renew.
High renewal is therefore not just a loyalty metric.
It is a core business dependency.
Merchandise selection
A limited assortment magnifies selection risk.
If Costco makes the wrong choice, there may not be ten alternatives on the shelf.
The company depends heavily on buyer judgment.
Employees
At the end of fiscal 2025 Costco employed about 341,000 people, with approximately 95% working in warehouses and distribution channels. [S1]
The operating model depends on:
- warehouse execution;
- productivity;
- merchandising;
- receiving and distribution;
- member service.
Real estate
Costco's warehouses require large sites with parking and high traffic access.
At the end of fiscal 2025, Costco owned both land and building for 725 of 914 warehouses. Of 189 leased locations, 141 were land-only leases where Costco owned the building. [S1]
This is a more property-intensive model than many people assume.
Logistics and depots
Rapid inventory turnover depends on efficient inbound movement.
Costco uses depots to cross-dock large supplier shipments and quickly send products to warehouses. [S1]
Member trust in value
Costco's model depends on members believing that the warehouse does enough price comparison and product curation on their behalf.
If a member feels the annual fee no longer produces meaningful savings or quality, the flywheel weakens.
Who Depends on Costco?
"Depends on" does not mean a supplier or member has no alternative.
It means Costco can become economically meaningful to that participant.
Suppliers
A selected Costco SKU can represent very large volume because the company carries few items and sells them across a global warehouse network.
That can make a Costco relationship commercially significant.
But Costco also avoids depending too heavily on one supplier.
Kirkland manufacturing partners
Suppliers making Kirkland Signature products participate in a private-label system where Costco is deeply involved in product specifications and value positioning.
Small businesses
Restaurants, offices, convenience stores and other small businesses can use Costco and Costco Business Center as low-cost procurement channels.
Members
For high-frequency members, the annual membership can become integrated into routine spending:
grocery
fuel
pharmacy
optical
tires
travel
household goodsThe more categories a member uses, the stronger the value calculation can become.
Company Relationship Map
Members
Member → Costco
Type: subscriber + retail customer
Scope: access + merchandise + servicesMembers provide both annual fee revenue and merchandise demand.
Suppliers
Supplier → Costco
Type: merchandise supplier
Direction: upstream
Scope: national brand / private label / fresh food / specialty goodsCostco's limited assortment concentrates purchasing volume among selected suppliers.
Kirkland partners
Supplier ↔ Costco
Type: private-label manufacturing relationship
Scope: Kirkland SignatureCostco buyers can help define the product, packaging and value proposition.
Instacart
Costco ↔ Instacart
Type: delivery partner
Scope: Same-Day DeliveryCostco members can order eligible warehouse products for Same-Day Delivery, with higher delivered prices covering service and delivery. [S14]
Price Club
Price Club ↔ Costco
Type: historical predecessor / 1993 merger partner
Scope: membership warehouse modelPrice Club shaped both Costco's operating heritage and the 1993 corporate combination.
Warehouse-club competitors
Costco ↔ Sam's Club
Type: competitor
Scope: membership warehouse retail
Costco ↔ BJ's Wholesale Club
Type: competitor
Scope: membership warehouse retail
Costco ↔ PriceSmart
Type: competitor / analogous model
Scope: selected international membership warehouse marketsCompetition by Business Layer
Membership warehouse clubs
The closest structural competitors include:
- Sam's Club;
- BJ's Wholesale Club;
- PriceSmart in selected international markets.
The competition is not merely shelf price.
It includes:
- membership economics;
- assortment;
- private label;
- gas;
- digital convenience;
- store network;
- renewal.
Supercenters and broadline staples retail
Costco competes with companies such as Walmart and Target for household spending.
The business models differ.
Costco uses:
membership
+ limited assortment
+ bulk / large pack sizeswhile broadline retailers generally offer many more SKUs and do not require a paid membership for basic shopping access.
Grocery
Foods and sundries plus fresh food are Costco's largest sales categories.
That puts the company in direct competition with:
- supermarkets;
- mass merchants;
- hard discounters;
- online grocery.
E-commerce
Costco competes with online retailers while intentionally preserving warehouse economics.
Its 10-K notes that e-commerce currently carries a lower gross-margin percentage than warehouse operations. [S1]
Gasoline
Costco Gas competes with:
- fuel stations;
- supermarkets with fuel programs;
- other warehouse clubs.
But gas is also a traffic generator for the warehouse.
History
1976 — Price Club begins
Sol Price opened the first Price Club in San Diego.
Jim Sinegal worked there in senior merchandising, distribution and marketing roles. [S5]
1983 — Costco opens in Seattle
Jim Sinegal and Jeff Brotman co-founded Costco Wholesale and opened the first warehouse in Seattle. [S5]
1985 — Costco goes public
Costco went public on December 5, 1985. [S6]
1993 — Costco and Price Club merge
1995 — Kirkland Signature and Costco Gas
1997 — Costco name returns
PriceCostco became Costco Companies and adopted the COST ticker. [S6]
1999 — Costco Wholesale Corporation
The company adopted its current legal name and reincorporated in Washington. [S6]
2012 — Jim Sinegal steps down as CEO
Jim Sinegal retired as CEO effective January 1, 2012, and Craig Jelinek succeeded him. [S17]
2024 — Ron Vachris becomes CEO
Ron Vachris became President and CEO on January 1, 2024. [S15]
2024 — Membership fees increase
Gold Star and Business memberships increased to $65; Executive increased to $130. [S8]
2025 — 914 warehouses and 145.2 million cardholders
Costco ended fiscal 2025 with 914 warehouses and 145.2 million cardholders. [S1]
2026 — Net sales approach $300 billion
Costco's September 24, 2026 year-end release reported fiscal 2026 net sales of $297.247 billion, membership fees of $5.907 billion, total revenue of $303.154 billion, net income of $9.226 billion, and 939 warehouses. [S29]
How Costco Changed
| Dimension | Early Costco | Costco today |
|---|---|---|
| Core identity | U.S. membership warehouse | Global membership retail ecosystem |
| Supply | National brands / wholesale goods | National brands + growing Kirkland private label + fresh + ancillary |
| Assortment | Limited warehouse selection | Still limited in warehouse; broader online selection |
| Customer | Households and businesses | Global households, small businesses and Executive members |
| Access | Physical membership warehouse | Warehouse + e-commerce + Same-Day + Travel + Business Centers |
| Geographic scale | Pacific Northwest / U.S. | North America, Europe, Asia-Pacific and China |
| Traffic drivers | Merchandise | Merchandise + gas + pharmacy + food court + services |
| Private label | Limited | Kirkland Signature as a strategic platform |
| Digital role | None | Fast-growing complement to physical warehouses |
| Core economics | Membership + low-margin merchandise | Same core model, scaled globally |
The important part is continuity.
Costco has changed in scale, geography and channels without abandoning the original membership warehouse logic.
Turning Points
Turning Point 1 — Adapting Price Club's membership warehouse model
What changed
Costco began with a retail model already tested at Price Club.
Why it mattered
Jim Sinegal brought direct operating knowledge of the format.
What it enabled next
Costco could scale a model based on low overhead, buying power and paid membership rather than inventing every operating principle from scratch.
Turning Point 2 — The 1993 Price Club merger
What changed
Two major membership warehouse companies became one organization.
Why it mattered
The merger expanded scale, purchasing volume, locations and operating talent.
What it enabled next
A stronger global warehouse-club platform.
Turning Point 3 — Kirkland Signature
What changed
Costco created one broad private-label identity across many categories.
Why it mattered
The company gained a product-development and margin lever that could also reinforce value perception.
What it enabled next
A growing mix of differentiated merchandise that competitors cannot simply price-match SKU for SKU.
Turning Point 4 — Ancillary businesses
What changed
Gas, pharmacy, optical, tires, hearing aids and food court added more reasons to visit.
Why it mattered
A membership becomes more valuable when it saves money across many recurring household needs.
What it enabled next
Higher visit frequency and deeper member engagement.
Turning Point 5 — Digital as a complement, not a replacement
What changed
Costco added e-commerce, Same-Day delivery, app features and digitally-enabled shopping.
Why it mattered
Members increasingly expect convenience beyond the warehouse.
What it enabled next
Costco can add digital utility while preserving the physical warehouse as the economic center.
Leadership
Jim Sinegal
Jim Sinegal co-founded Costco and served as CEO from 1983 through the end of 2011.
His business significance comes from translating Price Club's warehouse-club logic into Costco's long-term operating system:
low overhead
limited selection
high volume
low markup
member value
employee focusRon Vachris
Ron Vachris has been Costco's President and CEO since January 1, 2024. [S15]
He joined Costco more than four decades earlier, starting as a forklift driver and later serving across operations and merchandising.
His leadership period is focused less on replacing Costco's model than on scaling it through:
- more warehouses;
- global sourcing;
- Kirkland investment;
- digital capability;
- supply-chain optimization.
What Most People Miss
1. Membership fees are strategically central but not most of Costco's revenue
Fiscal 2025 membership fees were $5.323B versus $269.912B of net sales. [S1]
The business does not live on membership fees alone.
Membership changes the economics around the merchandise business.
2. Limited choice is a feature, not a weakness
Costco carries fewer than 4,000 core warehouse SKUs. [S1]
That allows more purchasing volume behind each selected item and reduces handling complexity.
The absence of dozens of near-identical alternatives is part of the operating model.
3. Fast inventory turns can improve working capital
Costco says it often sells inventory before supplier payment is due. [S1]
That makes merchandising speed financially important.
4. Gasoline can lower reported gross-margin percentage and still be valuable
Costco says gasoline generally carries a lower gross-margin percentage but increases warehouse traffic. [S1]
The right question is not:
Is gas margin high?
It is:
Does gas make the overall membership relationship stronger?
5. Kirkland can be cheaper and higher-margin at the same time
Costco says Kirkland products generally sell below national-brand prices and generally earn higher margins. [S1]
Those statements are not contradictory if Costco changes the economics of sourcing, branding and distribution.
6. Costco owns far more real estate than the simple "warehouse retailer" label suggests
At the end of 2025 it owned the land and building for 725 warehouses and owned the building on 141 additional leased-land locations. [S1]
This is not an asset-light retail marketplace.
7. Digital is growing quickly but Costco still protects warehouse economics
Same-Day prices are higher than in-warehouse prices because delivery costs have to be paid. [S14]
Costco is not promising that every channel has identical economics.
Common Misconceptions
"Costco makes all its profit from membership fees."
Too simple.
Membership fees are highly important, but Costco also earns substantial merchandise gross profit.
"Costco carries a huge selection because the stores are huge."
No.
The stores are physically large, but Costco deliberately limits the number of SKUs.
"Kirkland Signature is one manufacturer."
No.
Kirkland is Costco's private label across many categories, made through different supplier relationships and, in some cases, Costco-supported production facilities.
"Costco Gas is mainly a profit center."
Not exactly.
Costco says gasoline generally has lower gross-margin percentage but increases warehouse traffic. [S1]
"Costco is only for large families."
No.
The membership also supports business purchasing, services, gasoline, travel, pharmacy and other categories that can create value independent of household size.
"Costco's online prices must be the same as warehouse prices."
No.
Online and Same-Day fulfillment can carry different costs, and Costco explicitly notes that some digital prices differ from warehouse prices. [S14]
Common Questions
What does Costco actually do?
Costco operates membership warehouses and e-commerce businesses that sell a limited selection of branded and private-label merchandise at low prices, supported by membership fees and high sales volume.
How much does a Costco membership cost?
In the U.S., Gold Star and Business membership are $65 per year. Executive membership is $130 total. [S7]
Why does Costco charge a membership fee?
How many products does Costco carry?
Costco says its core warehouses carry fewer than 4,000 active SKUs. Online assortment averages roughly 9,000–10,000 SKUs. [S1]
Who founded Costco?
Jim Sinegal and Jeff Brotman co-founded Costco Wholesale and opened the first Seattle warehouse in 1983. [S5]
Who is Costco's CEO?
Ron Vachris has served as President and CEO since January 1, 2024. [S15]
What is Costco's ticker?
COST on the Nasdaq Global Select Market. [S1]
What is Costco's CIK?
0000909832.
How many warehouses does Costco have?
As of the September 24, 2026 year-end release, Costco operated 939 warehouses worldwide. [S29]
What Changed Recently
Fiscal 2026 — Net sales reached $297.247B
Costco reported fiscal 2026 net sales of $297.247B, up 10.1%, membership fees of $5.907B and net income of $9.226B. [S29]
Why it matters
The warehouse model continues to scale at nearly $300B of annual merchandise sales.
2026 — Warehouse count reached 939
By September 24, 2026 Costco operated 939 warehouses worldwide. [S29]
Why it matters
New units remain an important growth lever even as Costco's established markets become denser.
Q3 2026 — Paid memberships reached 82.9M
Costco reported 82.9M paid memberships and 148.5M cardholders at the end of Q3 2026. [S4]
Why it matters
The recurring relationship continues to expand alongside physical warehouse growth.
2026 — Digitally-enabled sales continued growing above warehouse comparable sales
Costco reported Q3 digitally-enabled comparable sales growth of 21.5%, compared with total-company comparable sales growth of 9.8%. [S3]
Why it matters
Digital is becoming a larger convenience layer even though the warehouse remains the core economic model.
2025–2026 — Executive membership gained more weight
By Q3 2026 Executive memberships reached 41.2M and represented 75% of sales. [S4]
Why it matters
Costco's highest-fee membership tier increasingly represents the majority of spending.
Evidence
Claim: Costco's core model is limited selection + low prices + high volume + rapid inventory turnover
Primary source: FY2025 Form 10-K. [S1]
Claim: Costco carries fewer than 4,000 core warehouse SKUs
Primary source: FY2025 Form 10-K. [S1]
Claim: Membership is integral to Costco's business and profitability
Primary source: FY2025 Form 10-K. [S1]
Claim: Membership fees were $5.323B in fiscal 2025
Primary source: FY2025 Form 10-K. [S1]
Claim: Kirkland products generally have lower prices and higher margins than national brands
Primary source: FY2025 Form 10-K. [S1]
Claim: Gasoline is lower-margin but helps drive warehouse traffic
Primary source: FY2025 Form 10-K. [S1]
Claim: Costco often sells inventory before supplier payment is due
Primary source: FY2025 Form 10-K. [S1]
Explore Costco
Membership & Brand
- Costco Membership
- Kirkland Signature
Retail Formats & Services
- Costco Warehouse
- Costco Business Center
- Costco Travel
- Costco Gas
People
- Jim Sinegal
- Ron Vachris
Related Company
- Price Club