Costco is a business giant. How did it get so big? What insights can real estate investors gain from its success to scale their own enterprises?
Costco Wholesale Corporation is one of the biggest and most successful companies in the world. Success like that doesn’t just happen, and remain sustained by accident. What are some of the things that have helped the company grow and maintain? How can that be applied to real estate?
Just How Big is Costco’s Wholesale Operation?
The company is second in its industry, only to Walmart. In some countries and product categories it has actually beat Walmart. It was the first company to go from 0 to $3B in sales, in less than 6 years. As of 2016 Costco had annual revenues of almost $119B, with over $33B in assets, and employed more than 126k people. It has locations in at least 8 countries, sells online, and good go far bigger with a partnership in China with Alibaba.
Costco is famous for being a wholesaler. It buys low, and sells at an attractive bargain price to its customers. Barron’s notes that is about an 8% to 15% markup on goods. The company’s physical stores are still effectively warehouses, where members select items right off of the shipping pallets.
The Financial Post and other business analysts credit much of this wholesaler’s success with its sales psychology. This centers around prime sales drivers, including; urgency, scarcity, exclusivity, ego.
First of all, you can’t even shop at Costco unless you are a member of the club. You may not even be able to get into the store. That membership costs money to renew each year too. Shoppers feel smart because they feel like they are getting a great deal too. Costco is also known for maintaining a limited selection of each product type, and often not repeating the same items. If you see something on the shelf, it may be your only chance to get it. It’s kind of like Black Friday fever all year round. When people talk about shopping there it can make others uncomfortable and to feel inferior for not having made the investment in membership and enjoying the savings and deal items. These are all triggers which drive up sales.
Costco runs a very lean model. Aside from the store layout it is famous for not even providing bags for customers to carry out their purchases in. Costco also only accepts limited forms of payment. It recently axed a long-term relationship with AmEx, which has resulted in the credit card provider being sued by shareholders for the resulting loss of almost $100B.
This wholesaler has stood out, and has generated many new customers for its liberal return policies, and has been ranked as having the best customer service satisfaction rating in its niche.
For Real Estate Investors
Costco not only proves that wholesaling is a legitimate and credible business, but a very profitable and scalable one. While the company isn’t an exact blueprint for real estate wholesalers, its operations do give many clues and insights into ways that investors and business owners can increase their own success. Partnerships, lean practices, and smart sales psychology are all a part of this.