Costco: Where tech changes, but hot dog prices don't

Twenty-eight million chickens a year are grilled on the spit at the retailing giant, and it sells a lot of TVs too.

SAN FRANCISCO--At Costco, everything is big.

The warehouse retail giant in its 2006 fiscal year, which just ended, sold more than 1.5 million TVs and $300 million worth of digital cameras on end-cap displays, said CEO Jim Sinegal. It also filled 26.3 million prescriptions, sold 2 million pairs of glasses, printed more than a billion photos and served up 63 million hot dog and soda combinations. The combo sells for $1.50, which has been the same price for 18 years.

"Forty-seven million people have Costco membership cards," Sinegal said during a presentation at the ThinkEquity Partners Growth Conference taking place here this week.

And let's not forget groceries. In the same time period, the chain sold $500 million worth of seafood around the world, 28 million rotisserie chickens in the U.S. and Canada, and accounted for 11 percent of the organic milk and 40 percent of the Tuscan olive oil sold in the states during the same time period. It also sold $805 million worth of wine, a figure that included $390 million of fine wines.

"We are the largest wine merchant in the country," Sinegal said.

Overall revenue for the chain for the first 52 weeks of fiscal 2006 (which ended Sept. 3) came to $57.8 billion, although the company cut the earnings forecast for the entire year. The average sales per store come to more than $125 million a year. The chain now has 487 stores and an online operation that accounted for $880 million in revenue the last fiscal year. Over the next 10 years, Sinegal thinks it's possible to double the size of the business.

Costco myths and facts
The retailer, which is now fifth in the U.S. and seventh worldwide, in some ways thrives on surprise. In the public mind, the chain is associated with blue-collar or middle-class shoppers. In reality, the average Costco shopper in the U.S. has an average annual income of $72,000, higher than the $59,600 average for the nation as a whole. Over 50 percent of the women and men in the top 10 percent income bracket shop at the chain.

As a result, the merchandise and brands sold at the store can take an upward tilt. In fiscal 2006, it sold over 96,000 karats worth of diamonds, as well as a $252,000 necklace sold recently at a store near the home office.

The store also doesn't sell as much of its Kirkland brand as you might think. Kirkland products only account for around 18 percent of sales. Sony, which many said wouldn't sell through Costco, has sold TVs there now for the last several years, Sinegal said. DeWalt, the fancy tool brand created by Black and Decker, turned down the chain for years. DeWalt is now sold at Costco.

Another little surprise is that the company really doesn't want to offer consumers too much at once. Instead, the store tries to limit the number of unusual deals and juggle the merchandise on display at any given time, according to. That way, shoppers don't overload.

"There is a treasure hunt atmosphere," said CFO Richard Galanti. "Whether its Callaway golf clubs, Prada handbags or a $12,000 tree house."

Galanti also emphasized that the store pays employees well. The average wage is in excess of $17 an hour. Contributions to health plans come to less than 10 percent. In all, the store has 125,000 employees.

So what's next? More stores, both in the U.S. and overseas. An opening at a store in 2005 in Chung Ho in Taiwan brought in throngs of shoppers. The mayor got booed during his speech because people wanted to start shopping, Sinegal said.

But where do they get those strange deals, like heavily discounted plasma TVs from Thailand or every season of Little House on the Prairie in multi-box DVD sets?

"It's the art form," said Sinegal.

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Tech Culture
About the author

    Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.

     

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