What Does Costco Do That Everyone Else Doesn't?

Confident and competent management is hard to put too high a price on. When Costco (NASDAQ:COST) CFO Richard Galanti was asked what the company would do differently because of the shorter holiday season, he simply said, "It doesn't matter, I mean every pre-holiday Christmas day is better than a post holiday Christmas day, but overall we're approaching it the same from an inventory standpoint and it being fairly positive on our buying." In a season of misgiving, that's a refreshing view.

Shorter season pulls retailers down
Sometimes the calendar hurts retailers, and this is allegedly one of those times. Thanksgiving falls on November 28, which is the latest day it can hit. That means that the days between Thanksgiving and Christmas -- also known as the holiday shopping season -- is the shortest that it can ever be.

In addition to the short season, retailers are coming off a soft year for sales overall. Target (NYSE:TGT), for example, just announced a lackluster quarter, with CEO Gregg Steinhafel putting some of the blame on slow economic growth. That's not going to change in the next month and a half.

As a result of the broad weakness, Target, Wal-Mart (NYSE:WMT), and other retailers are all warning the market not to expect much for Christmas this year. Wal-Mart is looking forward to an aggressive holiday season as it competes for consumers' limited dollars.

Ignoring the competition
The beauty of Costco's plan is that it's based on what it wants to do, not what competitors are doing. The company now has 71.2 million members. That's a dedicated user base that allows it to focus on its core competencies rather than stretching to meet the expectations set by other retailers.

That's what helps Costco keep its laser focus. It sees itself as its biggest competition and the service that it provided the last time the customer was in the store. By focusing on beating that expectation, rather than the price down the road, it continues to win more and more dedicated customers -- membership grew by 1.3 million in the fourth quarter.

The end result of Costco's strategy is that it ends up being the driver of price pressure for other businesses. Sometimes that means that the company prices things lower than normal margins would allow, but it does so on its own terms. Those sorts of decisions keep loyal customers coming through the door, keep Costco out in front of its competitors, and keep investors coming back for more.