Costco's Philosophy: Keep costs down and pass the savings on to our members.

How does Costco minimize their expenses?

1. Buying nearly all merchandise at volume discounts
2. Ship stock directly to selling warehouses to minimize freight costs
3. Stores are located on industrial sites to ensure low property costs
4. Merchandise is stocked directly onto selling floor and then the pallets are stacked to reduce handling and stocking labor.
5. Limited number of sales and service employees - store is almost entirely self-serviced.

~ How does a small company like Costco square up against the giants of retail such as Wal-Mart and Amazon? ~

Reasons for Costco's Success

1. Costco has become a go-to brick-and-mortar destination for shoppers looking for a wide variety of products at an affordable price
2. Membership model - increases sales and gives customers better deals
3. No marketing costs
4. Carry a limited amount of merchandise (around 4,000 products at a time)

1=3 Theory: One "great" employee is just as productive as three workers that are only "good"

• Hourly workers at Costco make an average of more than $20 an hour
• 88% of Costco’s 185,000 employees have company-sponsored healthcare
• Costco believes in keeping great employees who will motivate customers to come back.

Efficiency wage - the practice of paying workers more than the going market rate for their skill level.

How can an efficiency wage benefit a company?

1. "Humans are hard-wired for reciprocity"
2. More pay = more motivation = higher quality work
3. More pay attracts better skilled people
4. More pay enables a company to be selective of who they hire

Lesson: If a company treats employees well, everyone benefits and it leads to a happier workplace environment, ultimately resulting in a more profitable company.