Costco posted roughly $7 billion in net profit last fiscal year. Almost none of that came from margin on merchandise. Membership fee revenue alone hit $4.7 billion — nearly the entirety of the company's profit. Everything sold in a Costco warehouse goes out close to cost; the thin markup barely covers operating expenses. In other words, Costco isn't really in the business of selling things. For more than 40 years, it has run on building a relationship with customers and monetizing that relationship instead. If this structure looks strange, the strangeness is worth examining closely — because inside it are things neither Amazon nor Coupang can easily replicate.
Why It Turned Down 1.3 Million Items
Costco stocks roughly 4,000 SKUs. Walmart, by the same measure, carries about 130,000. Amazon carries hundreds of millions. A narrow selection looks like a competitive weakness. In practice, it works in the opposite direction.
When items are concentrated, the volume sold per item goes up dramatically. That scale translates into leverage with suppliers, faster inventory turnover, and less complexity in logistics. Costco's entire distribution model rests on this logic. Pallets arrive from suppliers and go almost straight onto the warehouse floor or shelves, with little need for unpacking or elaborate merchandising labor — a method known as cross-docking. Goods spend less time sitting in a warehouse and move into customers' hands faster.
Amazon's same-day delivery model generates costs that run in an entirely different direction. It requires automated fulfillment facilities scattered around metro areas, delivery labor, and a complex order-processing system. Costco's operating costs run around 10% of revenue; Amazon's are reportedly closer to 40%.
The staffing structure is worth a look too. Costco's average hourly wage is about $21.29, higher than Amazon's ($19.14) or Walmart's ($16.23). Despite paying more, Costco keeps costs down because of turnover. Its annual employee turnover rate is 6%, compared with a retail-industry average of 60% and roughly 150% at Amazon. That gap means Costco spends far less on hiring, training, and replacing staff. Keeping experienced employees around longer can be a cheaper way to run operations than any automation investment.
What the Membership Fee Does to the Relationship
Costco's membership renewal rate tops 90% — nine out of ten members who buy a membership one year renew it the next. Anyone who's paid the annual fee has a natural psychological incentive to get their money's worth: they visit often and buy in bulk. That drives high inventory turnover, which in turn lets Costco promise suppliers fast payment. Membership functions as a device that shapes the entire pattern of customer behavior.
The $1.50 hot dog combo has held the same price for more than 40 years. It's well known that Costco's leadership refused to raise it even during periods of severe inflation. This item was never meant to turn a profit. It's a device for pulling members into the store and reinforcing the sense that "this store is for me." A price taken at a loss functions as the cost of sustaining a relationship.
Amazon Prime also runs on a membership model, but Prime's core promise is speed of delivery. Competing on delivery speed keeps pushing infrastructure costs higher. Costco's membership is designed to run in the opposite direction: because customers come to the store themselves and haul away large quantities, there's no delivery cost — the customer handles the last mile of logistics on their own.
None of this means the model is flawless. Costco stores require large warehouse space on the outskirts of urban areas. Access is a hassle for people without a car or for small households. There's also a case to be made that bulk buying leads to waste — the complaint that a three-pound tub of guacamole can't be finished before it spoils is a common one among Costco shoppers. The narrow 4,000-item lineup draws steady complaints, too, from customers who can't find what they're looking for. Because the narrowing strategy assumes a particular consumption pattern and set of living conditions, it doesn't translate cleanly to dense urban centers or high-foot-traffic commercial districts.
The Question Facing Independent Sellers in the Coupang Era
Coupang is now following Amazon's playbook in Korea: fast delivery, a massive item count, price competition. If an independent seller goes head-to-head with Coupang or Naver Smart Store on this ground, they can't out-compete the platform on delivery speed, price leverage, or product range. As long as you fight inside the rules the platform designed, the platform wins.
Costco points to a different direction — narrowing the lineup, giving customers reasons to come back repeatedly, and putting the relationship at the center of the revenue model. A café owner who cuts the menu from fifteen items to six often finds that operations get simpler, costs drop, and baristas get skilled faster. It's a bet on selling less but selling it better, rather than selling more. When you understand why your core customers come back every week and focus on reinforcing that reason, revenue often doesn't fall even as the menu shrinks. That logic runs parallel to Costco's 4,000-SKU approach.
A short checklist follows from this. Which items currently on offer have low margins and high operational burden? If you cut them, do customers actually leave, or do they focus more on what remains? Why do your most frequent customers keep coming back? And is there room to build a recurring relationship or subscription around that reason? These questions point in the same direction as the choices Costco has repeated for 40 years.
Engineering the reason regulars come back — building a relationship that brings someone back after their first visit — is a direction that works regardless of store size. I'd argue this is one way to survive platform competition.
While Amazon and Coupang cast their nets wide, Costco has held its ground with 4,000 items, an annual fee, and a $1.50 hot dog. The goal was never to be everywhere. It was to leave a deep impression on whoever walked through the door.
