Cash Flow Dynamics: How Price Club and Costco Operate

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Price Club and Costco's cash flow model is different from competitors like FedMart
Suppliers deliver goods directly to warehouses
Goods are available for sale immediately upon delivery
Price Club and Costco sell goods before paying the supplier
Costco turns inventory 12.4 times per year, faster than competitors like Walmart and Home Depot
Costco has zero dollars tied up in inventory and can make money on the float
Costco sometimes turns inventory two or three times before paying the supplier
Vendors effectively finance Costco's inventory

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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