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Comment by harryh | Hacker News Reader

Fun fact about Costco. More than 100% of its profits come from membership fees. The actual selling of goods loses a small amount of money.

See this super interesting twitter thread:

https://twitter.com/investing_city/status/117997425777998233...

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This analysis is a little bit weird and I don’t think quite tells the whole story. I remember digging into their 10K a while ago and the big takeaway was that a good Costco store will do somewhere around a billion dollars in revenue per year. Their merchandise profit is low, but I don’t think zero - I believe I calculated it at somewhere between half a percent and a percent on average. But again, that’s on a billion dollars per store.

Membership fees also aren’t pure profit - there’s some overhead with them and other member services at a net negative that lower it below 100%.

> This analysis is a little bit weird and I don’t think quite tells the whole story.

It's on Twitter, what did you expect.

Is that surprising? I thought that was the whole point of Costco, and other "warehouse clubs". Charge membership - sell the products at cost.

> Fun fact about Costco. More than 100% of its profits come from membership fees.

The backing analysis for this claim has none of Costco’s costs associated with membership, such that membership fees were pure profit. Yes, it's membership fees acocunt for revenue that is more than 100% of it's profit. It's merchandise sales account for revenue that is more than 100% of it's profit by a vastly wider margin, though.

The actual share of profits due to membership fees is a much more complicated question, but it's certainly not the full amount that treating it's membership fees as pure profit would suggest.

That is really interesting. Seems crazy, especially given that a lot of people use Executive with added benefits with $0 extra cost (essentially, via reimbursement). I typically get a check each year that more than covers the total membership costs.

Well the article does mention they run at 11% markup (compared to 25-50% in average retail), so I guess the cost of operations is roughly within that 11%, and the subscription is the profit.

> More than 100% of its profits

Anyone mind explaining how more than 100% is possible?

You make $5 profit on A, and -$1 profit on B. Your total profit is $4, 125% of which comes from A.

It's probably similar to PlanetFitness.

People get the Costco membership but barely go to it because Walmart or Kroger is closer.

Plus some companies buy loads of Costco membership for employee benefit.

No wonder I got such a pushy hard sell to upgrade. I was flat out promised that the upgrade couldn't possibly cost me more, even if I didn't shop very often and never took any special action. This was a lie, I lost around $100, and I stopped shopping at Costco.

The upgraded membership is 60usd more than the normal, gives you 2% back on purchases, and they will refund it to you if you ask, so not sure how you could lose 100 on that.

Maybe it was 60. I literally asked the cashier: "I will not remember to request a refund. Will it be automatically credited to me if I do not meet the threshold?", and they told me yes.

How did you loose $100? The upgrade gets you an additional 2%. So you'd have spend something. Like 3k to make it back.

Furthermore, they offer a full guarantee. Don't like it and they will refund you.

Perhaps it was 60. As I mentioned, I explicitly asked if I had to take any action to get the refund, and I was lied to.

By a cashier. Perhaps a manager would have been better to ask? "Lied to" is maybe hyperbole. "Got the wrong answer"?

The point is - I didn't "ask" anybody to upgrade, this was pushed harder than a time share.

How about I rephrase: "I felt lied to and taken advantage of, and I decided not to bother being a customer any longer, given that I shopped there very infrequently and despise high pressure sales tactics."

In the end, this is about my personal customer experience, which I've subjectively decided sucked enough to outweigh the utility I got from Costco membership. I can't stand pushy salespeople, and I basically argued with the cashier for several minutes telling him that I didn't want to upgrade. I said no at least five or six times.

I should have just stuck to my position, but after I was told that there was literally no way to lose money even if I never took any action to get a refund, I caved because I wanted to go home.

Wow. That was a dick move on their part.

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