How Costco Wholesale Corporation Makes Money

Costco's economics run backward from normal retail. A typical grocery chain or department store earns profit by marking up products — buy low, sell higher, pocket the spread. Costco caps that spread at 14-15% on branded goods and roughly 15% on Kirkland Signature items. The result: merchandise margins are deliberately too thin to fund the business alone. Profit comes from the membership card in your wallet. The math is stark. FY2025 membership fee income hit $5.3 billion on $275.2 billion in net sales. That fee income flows almost entirely to the bottom line because collecting it costs nearly nothing — no inventory risk, no spoilage, no freight. Net income for the year was $8.1 billion, which means membership fees alone could cover roughly 65% of total profit. Everything else the company does — moving pallets, negotiating with Procter & Gamble, running gas stations — exists to make that $65 or $130 annual card feel like a bargain. Two membership tiers drive the model. Gold Star costs $65 per year and gives household access to warehouses and online pricing. Executive costs $130 and returns 2% annually on qualified purchases, capped at $1,250. The Executive tier is where the real money concentrates: those members represented 73.6% of worldwide net sales in FY2025 despite being a smaller share of total cardholders. They shop more often, buy more per trip, and renew at even higher rates than Gold Star members. On the merchandise side, Costco carries approximately 3,700 to 4,000 SKUs per warehouse. For context, a Walmart Supercenter stocks around 120,000 items. Amazon lists hundreds of millions. This constraint is the engine of the whole system. By offering only one or two options in each category, Costco concentrates colossal volume into each product line. That volume gives it leverage over suppliers that no one except Walmart can match — and Walmart spreads its volume across far more items. The result is lower unit costs, which get passed to members as lower shelf prices, which justifies the membership fee, which funds the next cycle. Kirkland Signature deserves its own paragraph because it's not a normal private label. It's a $60-billion-plus annual revenue brand that spans vodka, diapers, olive oil, golf balls, laundry detergent, and prescription eyeglasses. Members trust it as equal or better than national brands. Because you can't buy Kirkland at Target or on Amazon, it functions as a loyalty lock — one more reason the membership card stays active. Costco controls sourcing, quality standards, and pricing through its Costco Wholesale Industries subsidiary, which means it doesn't just slap a label on someone else's product. It specifies what goes inside. Fuel is a traffic magnet. Costco gas stations consistently price 20-40 cents below surrounding stations, which pulls members onto the property multiple times per month. Margins on fuel are razor-thin, but the visits generate warehouse entries. Ancillary services — pharmacy, optical, hearing aids, travel, auto buying, the Costco Anywhere Visa by Citi — add layers of value that make the annual fee feel increasingly justified without requiring significant capital investment per service. The metric that matters most for Costco isn't revenue growth. It's the renewal rate. Everything else is downstream of whether 93% of households keep paying.

Costco's growth strategy is anchored by a single priority with a handful of supporting moves. The priority is international warehouses. North America is approaching saturation — not in absolute terms, but in terms of easy growth. The remaining U.S. Sites require more expensive real estate, tighter zoning negotiations, and smaller trade areas. Meanwhile, warehouse-club penetration in China, Japan, South Korea, Australia, and parts of Europe remains a fraction of what it is in the U.S. And Canada. Costco is adding 25-30 new locations annually, and the international share of that pipeline is growing every year. The supporting moves are less dramatic but financially meaningful. Kirkland Signature keeps expanding into new categories — pet food, health supplements, prepared meals, personal care — using member purchasing data to identify where private-label volume can displace national brands. Each successful Kirkland launch deepens the membership value without requiring a single new building. Executive membership upgrades are pure revenue-per-member growth. At $130 versus $65, with a 2% annual reward that encourages spending consolidation, every Gold Star member who upgrades generates more fee income and higher per-trip spending. It's the cheapest growth lever the company has. E-commerce is deliberately restrained. Costco isn't trying to become Amazon. The Instacart partnership handles same-day grocery delivery. Costco Logistics (built from the 2020 Innovel acquisition) manages large-item fulfillment. Costco.com serves categories where online purchase makes sense — electronics, furniture, jewelry. But the company is careful not to build fulfillment infrastructure that would undermine the warehouse economics that make everything else work. Most analysts miss that this restraint is the strategy, not a failure to execute.