Costco's Philosophy: Keep costs down and pass the savings on to our members.
How does Costco minimize their expenses?
- Buying nearly all merchandise at volume discounts
- Ship stock directly to selling warehouses to minimize freight costs
- Stores are located on industrial sites to ensure low property costs
- Merchandise is stocked directly onto selling floor and then the pallets are stacked to reduce handling and stocking labor.
- Limited number of sales and service employees - store is almost entirely self-serviced.
Costco earns a higher gross income than Wal-Mart for an assumed 100 square foot store
~ 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
- Costco has become a go-to brick-and-mortar destination for shoppers looking for a wide variety of products at an affordable price
- Membership model - increases sales and gives customers better deals
- No marketing costs
- Carry a limited amount of merchandise (around 4,000 products at a time)
Luis continually shows exceptional customer service, which can clearly be seen here by his award-winning smile
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?
- "Humans are hard-wired for reciprocity"
- More pay = more motivation = higher quality work
- More pay attracts better skilled people
- 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.