I'm a big fan of Costco and was a member for many years when I lived in California. But I'm not sure I fully understand their financial model. As the article notes, they sell products at significant discounts so their margins are thin. Meanwhile the membership fees aren't necessarily the great income stream represented in this article. I had an Executive membership for many years, at an annual cost of $100. But one of the perks is 1% back on every dollar spent. I never received less back than $150, which means Costco was paying me $50 each year for my membership. Presumably the real key to Costco's success is the warehouse-style approach wherein few items are stocked, but those items are stocked in bulk. Thus distribution costs are reduced, SKU management is eased, and fewer staff translates into lower operating costs.

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