Where The Name 'Costco' Came From

What's in a name? Many people believe it's symbolic of their true essence in life. But for a business, the moniker that it takes on harks back to its mission and speaks to its brand. So what went into the christening of bargain-bulk wholesaler Costco? The answer is a lot, but it's not as complex as you might think.

With nearly 900 warehouses in 14 nations across the globe, Costco has become the top dog in the world of membership-based retail chains, raking in more profits than competitors like Sam's Club and BJ's Wholesale. It's known for hocking its high-quality and luxury wares at the lowest price possible (even if Costco's prices are more complicated than they may seem). It's part of the chain's business model, a philosophy so ingrained into the brand that it bleeds into the name. Costco is a short amalgamation of the phrase "Cost Company" and speaks to the store's mission to sell great products at affordable prices. In fact, as a corporation, Costco is publicly traded on Nasdaq under the ticker symbol "COST."

So you may be asking yourself how they do it. The easy answer is a devotion to the almost cultish legion of loyal customers that Costco is known for. One of the reasons shoppers remain so loyal is because the wholesaler focuses on keeping them happy. Costco, for instance, doesn't run advertisements, investing instead in improving shopper services like online grocery delivery. The customers, in turn, play an integral role in expanding the army by spreading Costco's gospel to other soon-to-be members via word of mouth.

From rotisserie chickens to leaf blowers to oversized yard gnomes and even gasoline for your car (though Costco gas has been getting pricier), you're able to get bulk quantities of quality goods for low, low prices at Costco. Let's take a deeper dive into the economies of scale that make Costco's math add up. For starters, membership fees are a key piece of the formula. They make up the largest share of Costco's profit margin, accounting for an estimated $4.5 billion in revenue, as the company reportedin 2023. That huge windfall from 71 million paid annual memberships helps offset the relatively low cost of the products showcased on the warehouse floor. So no matter how many Costco membership tricks you know, don't think you're getting those killer bargains without any skin in the game.

Another factor is Costco's practice of limiting the inventory offered in its stores to 4,000 products at a time. That pales in comparison to other retailers like Walmart, which can have over 100,000 different items on the shelves at any given time. That lean approach means Costco buys from manufacturers in bulk with the expectation that high demand for those products will make them move faster once they hit the warehouse sales floor. 

"Offering our members low prices on a limited selection of nationally-branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover," Costco explained to shareholders in its 2022 annual report. So when you find a steal of a deal on your next Costco run, realize it's no happy accident. It's by careful design.