All that glitters…
While Costco impressed investors with its Q1 2024 earnings last week, surpassing Wall Street expectations on revenues and profits, there was one particularly shiny standout in the report: gold bar sales.
The membership-only big-box retailer reported that it had shifted over $100 million in 1 oz. bars of the precious metal in the quarter, even with a two-bars-per-shopper limit. Costco's 128 million members have been able to pick up the gold bars for a mere $2,069.99 per ounce, a negligible $49 premium — or just 2% — on Friday's spot price.
This minuscule margin is a crucial element of the company’s secret sauce, distinguishing it from retail giants like Walmart and Target where markups average 34% and 46%, respectively. Comparatively, Costco adheres almost exclusively to a 14% maximum markup.
Members only
Operating as a quasi-private club, Costco has traditionally relied on membership revenue for ~70% of its operating profit, with its cheapest annual membership going for $60 — a figure that hasn’t changed since 2017. While the membership revenue stream increased by an impressive 46% in the last 5 years, the company has successfully identified other profit-boosters, helping operating income soar over 80% in the same period.
The retailer's strategy has seen it eschew traditional advertising, maintain a low staff turnover by offering competitive wages, and streamline its product selection to around 4,000 items — a far cry from the 30,000 typically found in most supermarkets. However, Costco's standout performer is its Kirkland Signature brand, which (excluding gas) raked in a staggering $52 billion in sales last year, exceeding the annual revenues of Macy's and McDonald's combined.
