Have You Seen Costco Wholesale Corporation's Secret Weapon?

Wal-Mart (NYSE: WMT  ) may be the king of huge-volume retail, but is it the best stock in the industry?

Wal-Mart is indeed a giant: It's the only retailer on the Dow Jones Industrial Average and a recession-proof stock thanks to its low-cost sales model. But there's a heated rivalry going on with Costco Wholesale (NASDAQ: COST  ) , where founder Jim Sinegal's brilliant leadership uncovered a secret weapon. This trick lets Costco compete with Wal-Mart and even (NASDAQ: AMZN  ) on product prices while also treating its employees to high wages and great benefits -- and still make a generous profit.

In the video below, Fool analyst Anders Bylund will clue you in on Costco's secret weapon, which lets the company run head-to-head with new-age online retailers like Amazon while crushing staid dinosaurs like Wal-Mart.

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Read/Post Comments (14) | Recommend This Article (36)

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  • Report this Comment On February 02, 2014, at 11:48 AM, walter wrote:

    So I have to watch the video to get the "secret'.

  • Report this Comment On February 02, 2014, at 12:25 PM, franklee wrote:

    The analyst makes a basic error in concluding that the membership fees go straight to the bottom line. They are in fact combined into revenue and the COGS and Expenses are deducted. They do have the affect of leavening the profit but not 100% to the bottom line. Rookie mistake.

  • Report this Comment On February 02, 2014, at 12:52 PM, cakebatter wrote:

    Love costco . Many employees have worked there for many years. They are good to their employees and always have incentives to keep people staying longer. Great place.

  • Report this Comment On February 02, 2014, at 2:55 PM, cahrens123 wrote:

    I have a Costco membership, Amazon Prime membership, shop at Wal-mart when I need milk at 11pm, shop and Trader Joes, Jimbos, Sprouts, and Whole Foods for food, just whatever is convenient at the time. Costco has an awesome return policy so we buy all out big items there. We don't buy bulk lettuce because it will all just go bad. Amazon Prime is good for most things, but not perishables. After we put the kids to bed, the only thing that is open is Wal-mart, and they have Horizon organic milk with DHA. Food shopping just varies on whether we're going to the YMCA, or preschool, or the beach or whereever. We just swing by one of the grocery stores and pick up some food. Our grocery budget is $400/week and neither Costco nor Amazon will see any of that.

  • Report this Comment On February 02, 2014, at 4:57 PM, spwangsu wrote:

    Do not agree with the idea of 'secret'. Costco does differently than walmart or Amazon in many ways, not only the membership. Costco returns even more to its members by as much as 2% of all the annual purchases.

    useless analysis, have to say that,

  • Report this Comment On February 02, 2014, at 5:02 PM, marcinmin wrote:

    I love Costco. I've been a member since 2002. They are probably more comparable to Sam's Club, but they have great prices. Their produce is fresh, too. And the employees are treated with respect, decent wages and good benefits. What's not to like?

  • Report this Comment On February 02, 2014, at 7:49 PM, dave923 wrote:

    I still don't know what the secret is. I refuse to watch a video. I can read fine

  • Report this Comment On February 02, 2014, at 8:23 PM, moniquealv97 wrote:

    I have been a member of Costco since 1983

    I don't have a problem with them.

  • Report this Comment On February 03, 2014, at 12:39 AM, DevonNullman wrote:

    franklee - how would you suggest Costco calculate COGS for membership fees ? Cards + the labor to enter & maintain, camera maintenance, etc? I'd think the costs are part of 'miscellaneous costs' and they don't even try to get the "true" cost.

  • Report this Comment On February 03, 2014, at 10:14 AM, baconater357 wrote:

    Hello, I have never been to Costco, what are the yearly fee's, and is it really worth shopping there? My wife and I have 5 children,pre -teens, and are starting to eat like horses, so it buying in bulk at Costco really save me money, or does it add up to the same as buying a mass quantity at a store like a major grocery store? So, over all, is it worth the yearly fee and does it pay off buying there in bulk for a large family? Thank you in advance to all comments left for me, I will decide if it is worth the yearly fee and the trip to my local Costco. Many THANKS...

  • Report this Comment On February 03, 2014, at 1:54 PM, wanker2456 wrote:

    Hello, I work at Costco, it pays good and great benefits, I hate working there because it can be stressful, the managers are strict and hoover over the employees, the lower managers are verbally abusive and rude to employees, the upper managers expect everything to be perfect which gives the lower managers stress and they take it out on the employees, I feel I am constantly being monitored and may lose my job, I have low confidence and POS when I work there, hard to leave Costco because of the wages and benefits though which makes me stuck on if I have the balls to find a new job.

  • Report this Comment On February 03, 2014, at 2:56 PM, ksa wrote:

    Costco is compatible with Sam's club not Wal-mart. Wal-Mart has lot more items than Costco. It has both smaller and sometimes larger packages which they get from it's subsidiary Sam's club.

    For example Costco does not have bird food except one wild bird food and few more items like different shoes, sandals etc. Costco does not have; Sam's club and Wal-mart have. On the other hand COSTCO has very many variety of foods, very fresh and lot of them on sale with coupons including advantage of plus membership that gives 2% back.

  • Report this Comment On February 03, 2014, at 10:53 PM, rickinphil wrote:

    Best thing at Costco is their "food court". Huge hot dog, sauerkraut, relish, onions, two kinds of mustard and unlimited drinks for $1.50. Whenever shopping nearby I would go there for lunch. Just wish they didn't replace Shofar with regular beef, but still a great deal.

  • Report this Comment On February 04, 2014, at 3:19 PM, Jeanne wrote:

    I think the analysis of profit from the memberships is flawed but interesting. By far most of the sales at Costco are by executive members who get cash back. I actually get enough money back to pay for several of the $55 memberships, so the math on this analysis is too simple.

    That said, I would love to see a more complete analysis of profit from memberships.

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Anders Bylund

Anders Bylund is a Foolish Technology and Entertainment Specialist. Where the two markets intersect, you'll find his wheelhouse. He has been an official Fool since 2006 but a jester all his life.

Hypoallergenic. Contains six flavors not found in nature. Believes in coyotes and time as an abstract.

Follow Anders on Twitter, LinkedIn, and Google+.

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Related Tickers

8/27/2015 4:00 PM
COST $140.21 Up +2.05 +1.48%
Costco Wholesale CAPS Rating: *****
WMT $66.08 Up +1.25 +1.93%
Wal-Mart Stores CAPS Rating: ***