Costco's Strict Margin Cap and Competitor Margins

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Costco aims to provide exceptional value to consumers by enforcing a strict margin cap of 14% on products, ensuring members get better deals than anywhere else. They negotiate hard but fairly with suppliers to secure unbeatable prices. The only exception is Kirkland signature, which allows a 15% markup. In comparison, department stores commonly have a 100% markup, while even discount retailers like Walmart mark up by 25%, almost twice as much as Costco.

Costco is not only Charlie Munger’s favorite company of all time (plus he’s on the board, natch), it’s an absolutely fascinating study in how seemingly opposite characteristics can combine to create incredible company value. For instance: Costco has the cheapest prices of any major retailer in America — and also the wealthiest customer base. They pay their hourly workers 30% above the industry norm (and give them excellent healthcare + 401k benefits) — and are almost 3x more profitable on labor than Walmart. Speaking of Walmart, Costco stocks 40x fewer SKUs than their Bentonville-based rivals — yet sells an average of 15x more volume of each. And oh yeah, practically all of Costco’s C-Suite started their careers as baggers and checkout clerks! Tune in for a mind-bending exploration of one of the world’s most iconic — and iconically unique — companies.

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‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.