Costco: A History

Where did Costco start? Costco's very first location was actually not the Costco-branded warehouse that we all know and love, but rather - through mergers - was an airplane hangar opened in 1976 in San Diego, California called Price Club. This converted airplane hangar catered exclusively to business owners and small businesses. However, Costco quickly realized that they could actually earn far much more by increasing their potential customers. With that information, they opened the first Costco-branded warehouse on September 15, 1983 right here in Seattle, Washington.

While the wholesale retail giant has now expanded to a whopping 803 locations with over 550 alone in the United States and is currently located in more than 10 different countries, there is still an exclusive characteristic to Costco. If you live in Washington, there are 32 Costco warehouses that you can visit with most of them located in the Puget Sound and along the I-5 for quick and easy access! However, in order to enter into a Costco today, you must have a membership or know someone with a membership which starts at the price of $60/year for a basic one and $120/year for a business one.

As a side note and fun fact, before Costco's location in Iceland opened, 1 in 8 Icelanders had already signed up for a membership. Talk about customer obsession!

At the end of 2019, Costco Wholesale Corporation employed 254,000 employees. Of this, there are 149,000 full-time employees and 105,000 part-time employees worldwide. By the end of 2020, they had grown even more and employed 275,000 employees overall worldwide. Here, in the United States, Costco can account for 185,000 of those employees in the workforce. This means that in Washington State alone, Costco employs around 11,000 people to work in the 32 different Costco locations. This number does not account for the headquarters which currently houses about 5,000 employees with an expansion bringing an additional 4,000 jobs to Issaquah. This brings the total employed Seattle area and Washington state employment to 20,000 folks.

When it comes to great membership retention, Costco can do that too! At the end of 2019, they had a total of 98.5 million cardholders. As of August 30, 2020 they had managed to do even better and increase their number of cardholders to 105.5 million worldwide. As it so happens, I, myself, finally joined both of my parents this year and became a Costco cardmember as well, so somewhere in that 7 million additional cardholders is me!

The Warehouses, on average, are 144,500 square feet in size! If you needed a visual of this, you can compare it to a city block in Manhattan, New York. That's just how big these warehouses and properties are. This is often because a typical Costco includes the warehouse, its own parking lot, a gas station, and a tire center or car wash. Inside the warehouses, you can often find a photo center, electronics area, jewelry section, optometrists and a whole variety of sunglasses and eyeglasses alongside the produce, fine wines, paper goods, and food center. The smallest Costco still sits at sizable 73,000 square feet while the largest Costco is currently at 205,000 square feet.

When it comes to input and output, Costco is always thinking about the most cost-effective way to go about things both for themselves but also for their customers. They spend a whole $0.00 on marketing and advertisements every year. Instead, they send letters and emails to their members when requested. In comparison, Amazon spends about 7 billion dollars on marketing each year while Walmart is sitting at about 3 million each year.

Even with no money spent on marketing, Costco's annual revenue for 2020 was at $163.2 billion worldwide. This is astounding considering Costco really only carries 4,000 different products at a time. For your reference, Walmart carries around 120,000 different products at a time. In addition to that, when it comes to Costco's products and pricing, they refuse to mark items up more than 14% for non-private-label items and cap it at 15% for their private-label, Kirkland Signature items. Even then, the price mark-up sits at an average of just 11% which probably accounts for that customer obsession and amazing membership retention year after year! And, if you were wondering about that product price mark-up elsewhere, at most retail stores, including Walmart, the price mark-up can be anywhere from 25 to 50%.

Their membership retention each year along with a very small employee turnover rate helps them to make a profit at the end of the day. Every year, from memberships alone, Costco generates around 3 to 4 billion dollars in revenue. In fact, a small piece of history about Costco is that it was the first company ever to go from 0 to 3 billion dollars in revenue in 6 short years.

When it comes to wages, in recent years, Costco has increased their minimum wage to at least $15 for U.S. and Canadian workers in order to compete with companies like Amazon. In Seattle, the current minimum wage is anywhere from $13.50 to $16.39 an hour for companies depending on how many employees they currently have worldwide. However, previously, warehouse employees reported earning anywhere from $11 to $23 for cashier jobs to cake-decorating to stocking the floor. While many may argue that the minimum-wage amounts can be seen as a negative impact by such a large company on Seattle workers in the industry, on the plus side, almost 90% of Costco's employees do receive health insurance which is a luxury not many retail chains offer to minimum-wage employees around the world.

Local infrastructure is important to Costco Wholesale Corporation. All of Costco's warehouses, including the ones originally built in Seattle in 1983 all follow Leadership in Energy and Environmental Design ( LEED ) certification guidelines. In Washington, in 2017, Costco tried out a program using goats to clean up vegetation in order to both save costs in landscaping while also eliminating the potential for herbicide damage to the area and it worked!

But, Costco also focuses on local infrastructure in other countries too. In the photo above, in Stevenage, England, Costco worked with a building made by a local architect in 1963. This allowed for the preservation of an important structure to the community and prevented the use of brand new building materials at the same time. For a bit more about their environmental contributions, read on!

True to their first store in Seattle, Washington and their headquarters in Issaquah, Washington, Costco Wholesale Corporation is focused on being as environmentally friendly and sustainable as possible. They hope to avoid deforestation, maintain ecosystems, avoid pollution, respect human rights and protect our water and soil from becoming contaminated with harmful chemicals among many things.

While palm oil is not an ideal product to use in terms of creating sustainable goods, Costco recognizes this and as such, is part of the Roundtable on Sustainable Palm Oil ( RSPO ). By having their seat in that roundtable they can maintain an eye on their supply chain to ensure their goods are regulated and made responsibly. A goal that they have set is to have all products 100% RSPO-certified by 2021 or sooner and they are currently at 96%! While they are aiming for a positive goal, unfortunately, this is still an overall negative impact by the industry on the Seattle region and in the world due to the many issues with palm oil.

For the organic products typically found in Seattle stores, Costco really emphasizes and relies on the use of local and regional farmers for their products. Some of these examples can include fruit and vegetables, varying meat, dairy products, nuts and grains, drinks and beverages, spices, oils, and sauces. Some of these items are only available if they are local to the individual geographic region, but others in this list are offered worldwide. Earthbound Farms is one of the companies that they work with providing products worldwide. This company uses sustainable field practices to ensure soil health and food safety as a priority while managing pests and weeds. Along with that, by producing in bulk, they are able to reduce the plastic packaging and waste.

A community, social, and educational impact that Costco has had on the Seattle region has been in coordination with Seattle University (Seattle U) and the University of Washington (UW). The  Costco Scholarship fund  gives financial assistance and scholarships to underrepresented, high-achieving students looking to attend Seattle U or UW. This program has funded close to 25 million dollars for over 1,000 students who were eligible for and received the award. However, it doesn't stop there! Once they accept the award, these students become part of the Costco Scholars Network where they can find leaders, alumni, and other students to further their educational success.

In addition to that, with all the unrest this year with the presidential election, the pandemic, and the Black Lives Matter movement, Costco announced that they would be putting $25 million towards Black-led financial institutions as well as community development. While this is not specifically just for the Seattle area, this is yet another positive community and social impact that the Wholesale Corporation has had.

As mentioned above, we have seen a few trends with Costco and the Seattle and Washington region. One trend to look out for is the changing size and location of where their headquarters are located. Currently they are in the process of expanding their headquarters in Issaquah to add an additional 4,000 employees to the roster. However, we have seen the headquarters move from Kirkland to Issaquah in the past which may have affected the region around them even though it was only about a 12 mile move.

Another trend that we see is their consistent adaptability to unique situations. This year especially, we went through an economic recession with millions losing their jobs due to the pandemic and COVID-19. Yet, Costco Wholesale Corporation somehow gained 7 million new cardholders! Perhaps this was because people needed hundreds of rolls of toilet paper to store in their closets or more water bottles than they could fit in their cars. In any case, they actually thrived in an unideal situation which shows they are more resilient than ever. I'll touch a bit more on how they adapted to the toilet paper situation below.

Surprisingly, Washington state does not currently have any warehouses that are using solar power is both shocking, but also makes sense with the weather patterns experienced here. Costco does have 111 locations that utilize solar power, but they're mostly in Arizona, California, Hawaii and the like which is where a large majority of the days are, in fact, sunny. Perhaps Costco will find a sustainable alternative energy source which would be a huge impact on the energy use in Washington State and all along the Puget Sound.

One last major trend that we will continue to see in both Seattle and worldwide is Costco's continuing partnerships with sustainable and responsible suppliers, organizations and companies. In 2019, all of their ecommerce shipping boxes for Costco-fulfilled items that were in the U.S. made from 100% recycled content, converted to boxes, and are fully recyclable. They also have a four-step packaging plan which includes reducing the amount of packaging, increasing the recycled content used and recyclability of packaging, and educating employees about the importance of sustainability all of which can be found  here .

So where and what are Costco's relationships to the rest of America and the world?

Location-wise, you may think that Costco is in every state in the United States, but it is fact only in 44 of 50 states and in Washington, D.C., as well as Puerto Rico. In terms of the world, Costco has opened locations in Australia, Canada, China, France, Iceland, Japan, Korea, Mexico, Spain, Taiwan, the UK, and is slotted to open one in New Zealand in 2022!

A huge part of Costco's brand is their  Kirkland Signature  line which are exclusive private-label products made by Costco. The name Kirkland is a nod to their original headquarters in Kirkland, Washington, but their headquarters have since moved to Issaquah, Washington. As part of their transparency towards their private-label products, Costco details out where their products are grown or processed in the global and regional markets. You can find out more  here , but I'll touch on a few of them.

This year, when COVID-19 hit, a major product that was flying off the shelves was toilet paper! While many of us wondered why the craze was around toilet paper, Costco was actually finding more productive and cost-friendly ways to supply this product to its customers. As a result, Costco shifted to an in-country production model for some of its higher volume goods. Amazingly, even with this shift, all of the Kirkland Signature bath, towel, facial, and napkin products are regulated and certified by the  Forest Stewardship Council  (FSC),  Sustainable Forestry Initiative  (SFI) or  Programme for the Endorsement of Forest Certification  (PEFC) as applicable. Along with that, this shift benefited Costco by reducing ocean freight and transportation emissions, lowering costs and retaining product quality, and increasing the shelf life of items.

Costco Wholesale Corporation is proud to claim many of its products are sustainably produced and processed  right here  in the United States. Many of these items are in their private-label Kirkland Signature brand. As they explain it, by having a private-label and fewer products carried in their warehouses, they are able to maintain control over the entire supply chain as well as the conditions that all of their items are made in. This ensures consistent, high-quality products at the lowest possible prices as well as respect for the people and animal who grow or produce them and the environments in which they are processed. Some of these American products include: cotton from Central California, chicken from Nebraska, wild Alaskan salmon from Alaska, organic and raw honey from various local producers, and organic milk and eggs again from local regions across the U.S.

Costco doesn't limit their products to the United States though. They have developed long-lasting relationships with farm owners and producers  around the world . Costco does maintain relationships with countries in both the periphery and semi-periphery while having its headquarters in a core country. Some of their products from around the world include organic chia from remote regions of Latin America, quinoa from Bolivia and Peru, cocoa from Cote d'Ivoire and so much more! Click around on the map above to explore some of the locations where their products are made.

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Hello!

My name is Emily Ritchie and I am currently a student at the University of Washington, Seattle in my 3rd year studying Public Health - Global Health and Microbiology.

I hope you enjoyed my final section project on Costco for my GEOG 208 class! Please do reach out for any questions, comments, or concerns at emritch@uw.edu.