What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing in today's video. We're talking about the third biggest retailer in the us. Costco costco today is almost ubiquitous in the american middle to upper middle class as one of the go-to premium grocery and retail stores, their big box style locations, sell everything from groceries to tvs, to clothing and everything in between to shop at a costco store. Consumers need a costco membership which costs about 60 a year.

The retailer has become extremely popular among consumers in recent years. As a result, their financial results have been stellar and their stock price has been soaring in this video. We'll talk about just what made costco so popular and so successful, and what, if anything that says about the retail landscape in america, costco has its roots in san diego from the 1970s. It was first started as a supplier for local small businesses by saul price and his son robert their first store, operated under the name price club and operated out of a converted airplane hangar.

The fledgling company quickly realized that it could achieve greater negotiating leverage by expanding its customer base to select non-businesses. It started offering memberships to individuals, thereby expanding its potential customer base. Thus it entered into the warehouse club industry. Meanwhile, jim and jeffrey brotman were building up.

The second piece of the business they started, the first costco warehouse in 1983 in seattle, washington, within a year they had opened multiple additional locations. Costco became the fastest company ever to achieve three billion dollars in sales. Both this costco and price club continued to grow rapidly separately throughout the 1980s in 1993 costco and price club merged to form price costco. At this point, the company had more than 200 locations and was doing 16 billion dollars in sales.

Their philosophy was similar to many retailers, to set prices almost as low as possible and to pass on any savings that they could achieve or negotiate back to their members. This worked well for price costco throughout the 90s and they changed their name back to just costco. In 1997., the 2000s was a period of steady growth for costco, while other retailers like kmart, sears and jcpenney, were struggling to keep the lights on costco's membership-based business model helped them to retain customers and distinguish themselves from the competition, also their focus on customer service and Product quality afford them a more premium perception than other club. Retailers like sam's club by 2014 costco had become the third largest retailer in the u.s, along with its growing store count.

Costco's revenue and profits have grown consistently for years. Their top line growth has been positive for each of the last 13 years. In 2008, a typical quarter would see costco bring in about 15 or 16 billion dollars of revenue in 2021. A typical quarter would bring in close to 45 billion dollars.

That's an annualized growth rate of more than eight percent astounding for a retailer of that size. For that long of a period costco keeps their profit margins low to retain customer loyalty, but their operating income has been consistently positive at a healthy one and a half billion dollars. A quarter operating income has also grown at a nearly 50 percent, faster rate than revenue. 12.5 percent per year, as costco, has grown scale and developed more operational efficiencies to go along with costco's outstanding financial results.

They have beat wall street forecasts for financial reporting year after year and quarter after quarter when investors come to expect companies to constantly beat and raise that is, beat expectations and raise their guidance. The stock price usually does exceptionally well and that's especially true for costco, whose stock has skyrocketed from about 150 dollars a share to 540 a share in the last five years alone. In almost a straight line, the s p 500 for comparison is up about 110. In the same period compared to 260 percent for costco, it's no wonder that most market observers love the stock.

So what is it about costco that has made it so popular with consumers? Costco themselves will tell you that's their maniacal commitment to providing good prices and high quality to consumers, and while they certainly are committed to those things, it actually goes much deeper than what meets the eye. Costco is a particularly hard negotiator when it comes to purchasing from suppliers. In fact, costco has been embroiled in some heated and high-stakes negotiation battles with big-name manufacturers. In 2009.

They were in a high-profile dispute with coca-cola over their wholesale prices, that coca-cola was demanding from costco costco felt that the prices were too high and they would not be able to offer their club members sufficiently good value unless coke lowered their price to costco. For a month, costco did not carry any coke products until finally, they were able to come to an agreement with a massive soft drink. Manufacturer costco maintains a policy of not marking up their prices to consumers excessively high compared to their own cost of goods. They do not take a more than 14 profit margin on regular items because of this internal policy.

Procurement teams are incentivized to negotiate hardwood suppliers to acquire the best prices for costco possible, with no room for expanding margins beyond the 14 maximum. The only way for management to increase profits is to increase total sales by lowering prices, thereby necessitating hard negotiation with suppliers. This has gained costco a reputation among suppliers as being one of the toughest retailers to do business with another unique aspect of costco's business model is how it manages its store brand. The kirkland line, the kirkland brand, was started in the 90s and can be found on all sorts of products from golf clubs to batteries to pasta.

Sauce, the costco private label is growing sales faster than costco as a whole and offers significantly discounted prices to the corresponding products of name brands where the kirkland brand differs from other store. Brands, however, is in how costco ensures the quality of their products costco engages in large amounts of third-party contract manufacturing. Many things that are sold under the kirkland brand side-by-side with recognized name brand products are actually manufactured in the same factories. Costco simply negotiates with the producers that they also produce product for sale under the kirkland brand.

This is an important benefit of the leverage that costco has over its suppliers. If they want to sell their items in costco, they may have to produce their product for scale under a competing brand name. But being able to sell in costco is a privilege. Most manufacturers would not be willing to give up given costco's, loyal customer base, and growing market share.

Earning shelf space at costco is pretty much a slam dunk for any producer. Part of this is because of costco's strict shelf management philosophy. Costco carries far fewer distinct items in the stores than comparable retailers such as walmart, whereas walmart frequently carries over a hundred thousand different products at any given time. Costco stores usually do not carry more than 5000 different items.

That's a difference by a factor of 20 or more usually for any given category of a product. Shoppers have a choice of only a few different brands and models, sometimes just one or two. It might seem like a disadvantage to carry fewer items than competitors, but research has shown that giving consumers more choices can actually decrease their probability of making any purchase. Researchers have found that the best consumer response comes from offering a smaller number of more stimulating and psychologically unique choices which leads to consumers taking more notice of the item in general, with too many choices, consumers may get flustered or find it hard to make a decision Between largely indistinguishable choices, instead of giving their members more choices for each type of product, costco has chosen to expand laterally, offering a greater range of types of product.

They even sell cars to their members. According to business, insider costco sells about 700 000 cars to costco members each year, costco partners directly with the manufacturers to offer promotions to their customers by providing access to their customer base. Costco is able to negotiate better deals on new and used cars, as well as parts and services according to msn costco car buyers save on average between one thousand and twelve hundred dollars per car compared to their local markets. The costco auto program is just another example of how costco can use its loyal member base to negotiate better prices from manufacturers.

Another major factor drawing consumers to costco is their popular food court. The majority of costco locations have a small food preparation operation that provides fast food, such as hot dogs, pizza and soft drinks. From time to time, costco changes the menu, but almost always offers low prices on mainly greasy food. The food court serves as an enjoyable part of the costco shopping experience when costco announced that their popular polish hot dog would be removed from the menu.

A few years ago, costco members were livid. There was so much public anger that competitor sam's club added, a polish hot dog menu item to their food court, to attempt costco members to switch memberships costco refused to bring back the polish hotdog, however, the rest of their menu, along with the other benefits that members Get from costco was enough to keep the majority of their customers. To this day. Many costco members go to costco for the primary purpose of visiting their food court.

Costco continues to be one of the most successful companies of the past 20 years, they've been able to fend off amazon's encroachment on all things: retail and consistently grow members, sales and profits in their october 2021 sales report, the most recent report. As of the recording of this video, they reported double-digit sales growth over the year ago period as long as they continue their astronomical growth and best-in-class profitability. There is no end in sight for the bull run in costco stock, alright, guys that wraps it up for this video. If you enjoyed this content, make sure to smash the like button and subscribe for future videos like this.

One also leave a comment saying what your experience with costco the company or costco the stock has been in the meantime. Thank you. So much for watching and we'll see in the next video wall street millennial signing out.