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Costco’s prices might seem unbeatable. But that doesn’t make it a wholesaler. Read on to learn the details of the business.
Many people join Costco to get access to lower-cost goods, from groceries to apparel to household essentials. And often, the savings that can be reaped via a Costco membership are enough to justify the fees, which are currently $60 for a basic membership and $120 for an executive one.
But you may be wondering what sort of business Costco really is. Is it a retailer? A wholesaler? A combination of both? Here’s the scoop.
Why Costco is not a wholesaler
Investopedia defines wholesaling as, “The act of buying goods in bulk from a manufacturer at a discounted price and selling to a retailer for a higher price, for them to repackage and in turn resell in smaller quantities at an even higher price to consumers.”
Now that’s clearly a mouthful. But if you look at what that definition entails, you’ll see that it’s not what Costco does.
Costco doesn’t buy goods in bulk and then sell them to other retailers. Rather, Costco buys goods and then sells those goods directly to consumers. That right there makes Costco a retailer.
Now you may be thinking, “Ummm…but the name of the company is ‘Costco Wholesale,’ and it even says so on its website, so what gives?”
That’s a fair point, and one that’s apt to lend to a degree of confusion. But a good way to think of it is as follows. Costco is a retailer that sells many items in bulk, or wholesale, quantities. But because you can buy goods directly from Costco, it’s technically not a wholesaler in the classic sense of the word.
Don’t get too caught up in the details
Figuring out whether Costco is a wholesaler or not can be tricky. But remember, just because a given word is in a company’s name doesn’t mean that that defines the business itself.
Take Pizza Hut, for example. It has “hut” in the name, but chances are, your local store is, well, an actual brick-and-mortar store and not in fact, a hut. Think of Costco in the same light.
That said, what you should know about Costco is that the revenue it collects in membership fees is what allows it to offer its goods at such competitive prices. So if you’re wondering how it is that you consistently manage to rack up a smaller credit card tab buying food at Costco than at regular supermarkets, there’s your answer.
Of course, you can make the most of your Costco membership by checking out the warehouse club giant’s monthly deals and scooping up items when they’re discounted. You might also benefit financially if you upgrade your Costco membership to an executive one, as that will allow you to score 2% back on all Costco purchases you make. That could be a good route to take if you use your membership often.
All told, it’s easy to see why you might look at Costco as a wholesaler. But the fact that it sells goods directly to you makes it a retailer — and one it could pay to visit often.
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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.