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Behind Costco's Treasure-Hunt Shopping Strategy | The Economics Of | WSJ - YouTube
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- [Narrator] If you've
ever shopped at Costco
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you may have noticed that
it's a little different.
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- Costco is not engineered
for a quick shopping trip.
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It is exactly the opposite.
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- [Narrator] This is
the economics of Costco.
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- It's not a grocery store.
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It's not a small corner store.
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It's huge, it's cavernous.
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The ceiling is high.
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Goods are literally stacked
on pallets up to the,
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almost the ceiling.
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That's all part of the
model and the experience.
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- I got a Costco hall.
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The first think we got
is a five dozen of eggs.
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Then we've got salmon...
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- [Narrator] Unlike most
stores, there are no aisle signs
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or in store maps to help direct shoppers.
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Instead aisles are simply numbered.
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What's more Costco, constantly moves some
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of its products and
cycles in new products.
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So what gives?
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Why are Costco stores designed this way
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and how has it helped the company grow
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into the retail behemoth that it is today?
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- Costco is a big fan of
using treasure hunt retail
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psychology to draw you in,
which is basically having items
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on the shelf that are at a like wow price
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because there's such a good discount
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or they're just really interesting
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and they're not gonna be there forever.
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- [Narrator] The big idea behind Costco's
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treasure hunt strategy is
that by encouraging customers
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to explore and ensuring that
there's always a new batch
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of interesting deals, customers
end up shopping longer
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and buying more products.
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- [Woman] Today, I went to
Costco thinking I was just gonna
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get a few items, but I ended
up with the whole entire cart.
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- When you go into the store,
it doesn't feel the same
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as the last time you were there.
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And so you have a sense of
urgency about purchasing
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and also just a sense
of wanting to come back,
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right and check out what's going on.
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If it was the same, every time
you might not come as often.
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- [Narrator] Today, Costco
is one of the world's largest
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retailers boasting over 803
locations and 275,000 employees.
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- Costco was part of sort
of this early warehouse club
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concept which was really
about, instead of like
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go to the store buy a single item,
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come to the store, pay membership
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and maybe you're a small business
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and we'll offer you wholesale prices,
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basically lower prices.
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- [Narrator] Most members
pay an annual fee of $60
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for the basic plan.
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The customers can upgrade
to the executive membership
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which is more perks for $120 a year.
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Membership dues are also how
Costco makes most of its money.
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- I think Costco's management's main goal
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is always this ethos of, can
we offer more exciting items
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at a better price to
keep memberships growing?
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The model is make money on the membership,
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sell things as cheaply as possible.
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They can't just raise
the price on something
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to increase the profit that's
against the internal code.
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And so that also includes
things like let's save money
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in how much time we spend
putting products on shelves.
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So that's part of the reason
why you see these pallets
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of goods stacked up to the
ceiling is there's not a lot
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of time spent taking apart those pallets,
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putting each individual
product on the shelf.
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If they eliminate that
there's a little bit
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of labor savings,
there's some time savings
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because they're just putting
all that stuff out on a pallet
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and you take it.
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- [Narrator] Costco says
that an average item
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in the store is only marked
up 11% compared to the 25
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to 50% often seen in retail.
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This commitment to low prices
hasn't just kept customers
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loyal, it has also helps spread the brand.
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- There's a psychology to finding a deal
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that's very satisfying for people
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and people enjoy the
product selection at Costco.
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They have very skilled
merchants that usually
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have been employed there
for a very long time
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and really know what a Costco
customer likely would want.
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And they're good at getting
good prices on those products.
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- I got premier protein flavor vanilla.
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- And that sort of
creates a certain frenzy
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around finding those things.
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- I got the Kirkland
brand microwave popcorn.
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I got two packs of bottled water.
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- [Narrator] Most retailers might assume
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that shoppers want more choices, not less.
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- They sell a limited number of items.
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So that means they have
to be pretty precise.
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They think about like
giving space to a product
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in their store differently
than a Walmart would.
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And if that product doesn't sell
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like it's out of there,
it's very cutthroat.
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If you're a product on the shelf
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you have to earn your place.
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- [Narrator] The average Costco warehouse
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stock's about 3,700
products at any given time.
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Less than 1/10 of most
supermarkets, 40 to 50,000 items.
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But even though Costco stocks fewer items
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the items they do stock have a reputation.
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- I see you've notice me
rolling up the sleeves
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on my new Kirkland signature quarters
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that my mother got me for the holidays.
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- Kirkland is Costco's you
know, private label brand.
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It's their store brand.
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It's a brand that when
they wanna offer something
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at a certain price they don't
feel a manufacturer supplier
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can do it.
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They build it themselves
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- [Narrator] Since it was launched in 1995
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the in-house brand has built a reputation
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for quality and low
prices on everyday items.
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Today. Kirkland products make up a quarter
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of Costco's $166 billion in annual sales.
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- But when you talk to customers,
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I think they generally feel
that it doesn't necessarily
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need to be fancy because
they've already bought
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into this Costco pitch which
is, this is high quality
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and it's a lower price and you don't need
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to be afraid of it.
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- [Narrator] That customer
loyalty helped Costco
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remain strong during the pandemic.
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- Costco is certainly a
model that has not only
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survived the pandemic
but has really thrived
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in the pandemic.
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- [Narrator] Despite
the increased popularity
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of online shopping Costco
has leaned into its strategy
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of driving members to it stores.
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- It's really interesting
to me because for years,
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people have questioned Costco.
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You know, Amazon is gonna get you.
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You got to get bigger online
and that really hasn't played
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out yet.
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They've said explicitly,
we prefer people to come
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into the store and shop.
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We want impulse buys.
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We want people to come in and
see what we have and buy more.
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We work better that way and it's cheaper.
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