The New Yorker had a great piece a few weeks ago, Can the Golden Age of Costco Last?, covering the history of its founding, some keys to success, and some reasons why it would be tough to maintain the unbelievable run of success the retail giant has enjoyed over the past 40+ years.
I began closely following the company more than 15 years ago as a retail analyst, and what stood out then as it does now is not just the eye-popping operational and financial success, but how unconventional the company’s operations are.
Consider the performance:
- Since its IPO in Dec 1985, the stock has returned 14,077% – a $1,000 investment would be worth $140,767 vs. a return of 7,514% for the S&P 500, and since the start of 2000, the stock has returned 2,697%, more than 4 times the total return of the S&P 500 (636%)
- Costco generates nearly $322 million in annual sales per US store, more than 3 times Walmart ($107 million) with the same store sizes, for an average sales per square foot of $2,166 vs. $716 for Walmart
And they do it all with zero spending on traditional advertising (relying on word-of-mouth and new openings), no stockroom (everything is on pallets), and limited product choice (~4,000 SKUs vs. over 100,000 for other big-box stores). The biggest difference vs. peers is they rely almost exclusively on hiring entry level employees and training/promoting from within – employees have their hire dates on their name tag.
- Of their 897 warehouse managers at the time of this year’s annual meeting, 87% started as an hourly employee and none of them were hired externally
- The average tenure of US employees is 9 years (vs. 5 for Walmart), with 34% having been there for more than 10 years (20% Walmart)
- Hourly pay starts at $20/hour vs. $15 at Home Depot, Lowe’s and Target and $15.75 at Walmart, and average hourly pay excluding bonus is $30 at Costco vs. $17.75 at Walmart and $18.54 at Target
Some other fun facts:
- Costco sold 229 million hot dog and soda combos in FY 2024 at $1.50, a price unchanged since it was introduced in 1985
- They sold 154 million rotisserie chickens for $4.99, a price unchanged since it was introduced in 2000
- Their magazine, the Costco Connection, has a circulation of over 15 million, ranking it in the top 5 for all magazines nationally
- Their private brand, Kirkland Signature, has roughly $86 billion in annual sales, more than Lowe’s generates in total
Only time will tell if Costco can continue having the same success over the next 25 years. We believe the culture and unorthodox approach to running a retail business will remain a competitive advantage—customers continue to vote with their wallets and loyalty (renewal rates in the US are regularly above 92%), and our multi-sourced employee rating shows the gap between them and their peers has only grown over the last 18 months.
What we’re reading:
- Working From Home Is Harming Young Employees. They’re Starting to See That. When large employers like Amazon, JPMorgan and the federal government tightened their office attendance policies this year, many younger workers appeared to balk. Opinion surveys from Gallup showed that they were generally more resistant than older workers to returning to the office full-time. But the picture was more complicated. According to Gallup, the youngest people were also the least interested in work that was entirely remote. (New York Times)
- 6 companies that have signaled they are replacing human employees with AI: As AI starts to replace human workers, companies have been increasingly open about the role AI adoption is playing in recent layoffs. However, while some companies have directly cited AI as a reason for workforce reductions, others have vacillated with their messaging, leaving ambiguity around the exact reasoning and whether AI is directly replacing workers. Here’s a list of companies that are replacing — or signaling they may replace — humans with AI. (Business Insider)
- Amazon Workers Issue Warning About Company’s ‘All-Costs-Justified’ Approach to AI Development: Over 1,000 Amazon employees have anonymously signed an open letter warning that the company’s allegedly “all-costs-justified, warp-speed approach to AI development” could cause “staggering damage to democracy, to our jobs, and to the earth,” an internal advocacy group announced on Wednesday. (Wired)
- A Timeline of Key Moments in the History of Work in America: From the 10-hour workday movement to OSHA: Here are seminal moments in the development of the U.S. workplace since 1776 (Wall Street Journal)
- Inside the Fortune 500 CEO pressure cooker: surviving is harder than ever and requires an ‘odd combination’ of traits: It’s never been easy to be the boss, but Mark Thompson and Byron Loflin, the co-authors of CEO Ready: What You Need to Know to Earn the Job — And Keep the Job believe the pressure cooker has never been as intense as it is now. (Fortune)
- US planned job cuts fall 53% in November, Challenger says: Layoffs announced by U.S. employers fell sharply in November, but hiring intentions continued to lag as businesses navigated an uncertain economic environment against the backdrop of tariffs on imports and slowing demand. Global outplacement firm Challenger, Gray & Christmas said on Thursday planned job cuts declined 53% to 71,321 last month from October. They were, however, 24% higher compared to the same period last year, and November’s tally was the largest for the month since 2022. (Reuters)
- AT&T drops DEI efforts to win FCC approval for telecom deals: AT&T has notified the Federal Communications Commission that it is ending its diversity, equity and inclusion (DEI) programs, a move aimed at winning approval for major telecommunications deals under the Trump administration. The FCC has made clear that it expects large telecom companies to dismantle DEI efforts when seeking approval for significant transactions. (Yahoo! Finance)
- Future-proofing the workforce: A fuzzy AHP–MARCOS model for evaluating green and digital reskilling in the ESG era: This research presents a novel methodology for evaluating environmental, social, and governance (ESG) performance by integrating internal human capital development with conventional environmental and governance criteria. Traditional ESG evaluations often prioritize outward disclosures, neglecting the internal organizational competencies essential for long-term sustainability alignment. A capability-oriented strategy is recommended to mitigate this constraint by including workforce development, diversity, and inclusion into ESG examination. (Journal of Environmental Management)