Knowing the differences between Costco and its competitors

The US is the largest economy in the world.

Economy and consumption come hand in hand.

So it's not that hard to understand that there are multiple retailers in the US. And some of them are big.

And what is the strength of Costco against its competitors?

Most retailers welcome anyone to shop with them.

Not Costco. Costco uses a subscription package to build a loyal customer base. Customers who are members will tend to shop at Costco.

That guarantees Costco a certain % of expected revenue by monitoring the growth of its members.

When you have a sizable number of shoppers who paid to become members and most likely shop at your outlets, you can be much more aggressive in prices.

That is why Costco is the leader in cost optimization in the industry. It is famed for selling products that are cheaper than what you can find anywhere else.

So the combination of a membership and cheaper prices, there is a simple flywheel mechanism for Costco to grow.

Retailers are judged by their efficiencies to move inventories. Thus the lower the average outstanding inventory days, the better.

Costco has the lowest average days of outstanding inventories. That makes it much more efficient in moving inventories and hence generating cash compared to its peers.

Do you think Costco is a better retail business?

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