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Costco: Costco Stores
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Like today's Democratic Party, Costco favors highly trafficked urban and edge-city locations—it has three stores in New York City. And it caters to a decidedly upscale crowd. As John Helyar reported in this excellent Fortune profile, the average salary of a Costco member is $95,333. The company's merchandise mix reflects the fact that its customers shop at discounters by choice, not by necessity. They're New Luxury suckers who like to save on staples, more Jean Chardonnay than Joe Six-Pack. As Helyar notes: "Costco is the U.S.'s biggest seller of fine wines ($600 million a year)."
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Threats of a Costco takeover by Sam's Clubs, which by 1993 owned 434 stores and nearly half of the market, prompted Price to begin merger negotiations with Costco in 1992. Costco, too, was eager to avoid being swallowed up by Sam's and was equally frightened by the prospect of Price selling out to Sam's Club. Yet negotiations broke down when the parties could not decide on who would head the projected new company. When Price's earnings continued to drop... down 40 percent in the second quarter of 1993, Price finally entered into a deal with Costco. Sinegal would take the CEO position and Robert Price was named as chairman of the board. Called a partial merger, the two companies would continue to operate their respective headquarters, with the bulk of domestic responsibility going to Costco and international business to be headed by Price.
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Costco has already begun expanding its warehouse empire across the U.S., which has allowed it to gain the majority of the market share from the competition. After opening about 20 new warehouses in 2007, Costco plans to open approximately 12 new stores in 2008 whose success will be influenced by cannibalization and/or a delay in their openings. Costco has managed to be extremely successful despite Wal-Mart's dominating retail empire, which is why continuing company expansion will be important for Costco in order to maintain its top selling status in the warehouse club market.
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The first Costco store was opened in Seattle, Washington in 1983. Costco focused on selling all types of products at low prices in high volume. Most products are bulk packaged and marketed to both small businesses as well as consumers. The company merged with Price Club in 1993. Costco now has close to 500 locations worldwide.
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Costco was founded with a single store in Seattle in 1983; it now has 457 stores, mostly in the United States, but ... in Canada, Britain, South Korea, Taiwan and Japan. Wal-Mart, by contrast, had 642 Sam's Clubs in the United States and abroad as of Jan. 31.Costco's profit rose 22 percent last year, to $882 million, on sales of $47.1 billion. In the United States, its stores average $121 million in sales annually, far more than the $70 million for Sam's Clubs. And the average household income of Costco customers is $74,000 - with 31 percent earning over $100,000.
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Costco Wholesale Corp. (COST ) handily beat Wall Street expectations on Mar. 3, posting a 25% profit gain in its most recent quarter on top of a 14% sales hike. The warehouse club even nudged up its profit forecast for the rest of 2004. So how did the market respond? By driving the Issaquah (Wash.) company's stock down by 4%. One problem for Wall Street is that Costco pays its workers much better than archrival Wal-Mart Stores Inc. (WMT ) does and analysts worry that Costco's operating expenses could get out of hand. "At Costco, it's better to be an employee or a customer than a shareholder," says Deutsche Bank (DB ) analyst Bill Dreher.
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