How Does Costco Make its Money?
Costco operates 897 membership-only warehouse clubs worldwide where it sells bulk merchandise at ultra-low markups. The secret of Costco’s business model: the company barely profits from product sales. Instead, Costco generates nearly all its profit from membership fees ($65/yr for Gold Star, $130/yr for Executive). The warehouses effectively operate as a break-even distribution system designed to maximize the value of membership.
Costco (COST) Business Model
Costco operates in the retail sector. Below is a summary of Costco’s revenue streams, how the company generates income, and the key financial metrics from its most recent annual report. This breakdown uses data from Costco’s 2024 fiscal year filings with the SEC.
Costco Competitors
Costco’s key competitors and comparable public companies in the retail sector include Walmart and Amazon. Each of these companies competes for market share, investor attention, and revenue in overlapping segments. See how Costco stacks up by comparing their revenue breakdown, margins, and growth metrics.
Costco Competitors
Costco’s key competitors and comparable public companies in the retail sector include Walmart and Amazon. Each of these companies competes for market share, investor attention, and revenue in overlapping segments. See how Costco stacks up by comparing their revenue breakdown, margins, and growth metrics.
Costco Competitors
Costco’s key competitors and comparable public companies in the retail sector include Walmart and Amazon. Each of these companies competes for market share, investor attention, and revenue in overlapping segments. See how Costco stacks up by comparing their revenue breakdown, margins, and growth metrics.
Costco Competitors
Costco’s key competitors and comparable public companies in the retail sector include Walmart and Amazon. Each of these companies competes for market share, investor attention, and revenue in overlapping segments. See how Costco stacks up by comparing their revenue breakdown, margins, and growth metrics.
Costco Competitors
Costco’s key competitors and comparable public companies in the retail sector include Walmart and Amazon. Each of these companies competes for market share, investor attention, and revenue in overlapping segments. See how Costco stacks up by comparing their revenue breakdown, margins, and growth metrics.
Costco Competitors
Costco’s key competitors and comparable public companies in the retail sector include Walmart and Amazon. Each of these companies competes for market share, investor attention, and revenue in overlapping segments. See how Costco stacks up by comparing their revenue breakdown, margins, and growth metrics.
Costco Competitors
Costco’s key competitors and comparable public companies in the retail sector include Walmart and Amazon. Each of these companies competes for market share, investor attention, and revenue in overlapping segments. See how Costco stacks up by comparing their revenue breakdown, margins, and growth metrics.
Costco Competitors
Costco’s key competitors and comparable public companies in the retail sector include Walmart and Amazon. Each of these companies competes for market share, investor attention, and revenue in overlapping segments. See how Costco stacks up by comparing their revenue breakdown, margins, and growth metrics.
Revenue Breakdown
| Segment | FY2024 (Sep) | FY2023 (Sep) | YoY Growth |
|---|---|---|---|
| Net Sales | $249.6B | $237.7B | +5.0% |
| Membership Fees | $4.83B | $4.58B | +5.5% |
| Total Revenue | $254.4B | $242.3B | +5.0% |
Net Sales — 98% of Revenue
Product categories (estimated breakdown):
- Food & Sundries (~40%): Grocery, snacks, beverages, cleaning supplies. The largest category and a key traffic driver.
- Hardlines (~16%): Electronics, health & beauty, hardware, office supplies.
- Fresh Foods (~14%): Meat, bakery, deli, produce. Costco is one of the largest organic food retailers in the U.S.
- Softlines (~11%): Apparel, housewares, small appliances, jewelry.
- Ancillary & Other (~19%): Gasoline (the largest single-item revenue generator), pharmacy, optical, food court, travel.
Kirkland Signature: Costco’s private-label brand generates ~$80B in annual sales (~32% of product revenue). Kirkland products are priced 20-40% below national brands while maintaining comparable or higher quality.
Membership Fees — 2% of Revenue but ~70% of Profit
| Metric | FY2024 | FY2023 |
|---|---|---|
| Total Cardholders | 76.2M | 72.4M |
| Paid Households | 36.9M | 34.8M |
| Renewal Rate (U.S./Canada) | 92.9% | 92.7% |
| Executive Members (% of paid) | ~46% | ~44% |
The membership fee increase to $65/$130 (effective September 2024, first increase since 2017) adds ~$400M annually in high-margin revenue.
Income Statement Overview
| Metric | FY2024 | FY2023 |
|---|---|---|
| Total Revenue | $254.4B | $242.3B |
| Gross Profit | $30.1B | $28.3B |
| Operating Income | $9.3B | $8.4B |
| Net Income | $7.4B | $6.3B |
Key Financial Metrics
- Gross Margin: 11.8% — Intentionally low. Costco caps markups at ~15% (vs 25-50% at traditional retailers). Low margins keep prices low, which drives membership renewals.
- Membership Fee Margin: ~100% — Membership fees drop almost entirely to the bottom line with minimal associated costs.
- Operating Margin: 3.7% — Thin but highly predictable, driven by the recurring membership revenue base.
- Renewal Rate: 92.9% — Extraordinary retention. Nearly all members renew, making membership revenue highly predictable.
Is Costco Profitable?
Yes, Costco is profitable. The company reported net income of $7.4B on total revenue of $254.4B. With an operating margin of 3.7%, Costco demonstrates solid profitability for the retail sector. The gross margin of 11.8% reflects Costco’s pricing power and cost structure.
What to Watch
- Membership fee increases — The 2024 increase was the first in 7 years. Each $5 increase adds ~$180M in near-100% margin revenue. Future increases drive disproportionate profit growth.
- E-commerce growth — Costco’s online business is growing but still represents <10% of sales. Same-day delivery partnerships (Instacart) and Costco.com expansion are priorities.
- International warehouse openings — Costco is opening 25-30 new warehouses annually, with increasing focus on international markets (China, Japan, Australia, Europe).
- Executive membership mix — Executive members ($130/yr) get 2% cashback on purchases. Growing this to 50%+ of members increases average membership fee revenue.
- Gasoline strategy — Costco gas stations are major traffic drivers. Below-market gas prices attract members to the warehouse, where they make additional purchases.
Costco (COST) Financial Summary
Costco (COST) is a retail company that generated $254.4B in total revenue in fiscal year 2024. The company earned $7.4B in net income, making it profitable. For a deeper look at Costco’s revenue breakdown, business segments, and financial performance, review the detailed analysis above.