Costco: Secrets to Success and Sky-High Valuation

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Costco Wholesale Corporation, often abbreviated as Costco, is one of the largest and most famous wholesale supermarket chains in the world. Founded in 1976, Costco has rapidly grown and become an icon in the retail industry thanks to its unique business model.

Over the past 20 years, Costco stock has increased more than 250 times.

• If someone invested $10,000 at the beginning of 2004, that money would now have grown to $2,550,000.

A few weeks ago, the New York Times published a quite interesting article about Costco:

“Costco, the world's 3rd largest retailer, has changed the way Americans shop over the past 40 years, making bulk buying and purchasing oversized items at the supermarket commonplace.”

Along with that is the conclusion:

“But Costco's success goes far beyond stockpiling. The company has hacked into the psychology of American consumers, attracting the responsible shopping ego (“12 cans of tuna for 18USD!”) and the impulse buying instinct (“I deserve a 98-inch flat screen”).

Costco's ability to achieve sustainable profits in the fiercely competitive industry is evidence of the company's unique business model. 

This week's article on Costco consists of 4 parts:

1. Overview and Costco's Business Model

2. Competitive Advantage Analysis

3. Financial Analysis

4. Preliminary Valuation