Filed Under:  U.S. & World

Costco’s Perceived Weaknesses Might Be Its Strengths

Contributed by on February 18, 2015 at 1:40 am

costco gas

Costco gas station

Costco (NASDAQ:COST) is one of the world’s largest members-only retailers. It operates a membership warehouse club where shoppers can get substantial discounts on select items. It covers a wide range of goods so, regardless of whether you are looking for hotdogs, French fries, or even lawn furniture, Costco can give you some great deals. In fact, shoppers love it so much that its annual sales have gone from $16 billion to $110 billion in the space of a couple of decades. That is how popular Costco is.

Still, it gets a lot of flak. A lot of its shoppers don’t like the fact that you have to wait in long lines to check out. Also, Costco is notorious for having goods available one day, and then sold out the next day. Another bone of contention people have for Costco is that you don’t really have anybody to ask when you are comparing different brands to buy. You only have a sign that says the price of the item.

Despite all these perceived weaknesses, Costco does well. The reason for this is that its perceived weaknesses are actually its strengths. Think about it. If there is a long line to check out, people who are looking to check out will probably stock up. Why would you waste all that time trying to check out with only a couple of items? You probably would try to maximize your waiting time by loading up your shopping cart. This, of course, means more sales and more profits for Costco. Instead of a negative, this can actually be quite a positive.

You have to remember that Costco is a wholesale membership store, meaning, people buy items in bulk. By having to wait in long lines, people are forced to buy in bulk and maximize their purchase. In terms of consumer items disappearing overnight, this is testament to how dynamic Costco’s supply chain is. They are looking for the best sources at the best prices. Sometimes, the best sources run out. That is just the fact of life.

Also, if you got used to buying one particular item and you see it permanently disappear, it is because it is not selling well. The fact that Costco yanked it off the shelf means that they are paying attention to sales efficiency. This can only benefit you over the long haul because, as they can sell a lot of one particular item, you can rest assured that you can get really low prices for that item.

Finally, limited shopping advice is a reflection of the cost efficiency of Costco. Instead of hiring extra people and consumers having to eat up the higher cost, Costco can simply stack products in its warehouse and have people figure it out. Getting information on a particular product or doing a features comparison is as simple as whipping out your smartphone or tablet and doing a search. The limited shopping advice, instead of hurting Costco, actually helps Costco because people are forced to do their searches online and make buying decisions that don’t impact Costco’s cost structure. All told, the perceived weaknesses of Costco actually work to its benefit.