The strength of (low) numbers

Has it ever occurred to you why people like shopping so much at Costco that they even pay an annual fee to do so? The following comment
It's been estimated that there are 1,000,000 SKU’s (Standard Stocking Units) out there in America. An average supermarket has 40,000 SKU’s. Now for the stunner: An average family gets 80% to 85% of their needs from 150 SKU’s. That means there's a good chance they'll ignore 39,850 items in that store.
posted here, and some additional information I had about Costco explained the magic of paid shopping membership.
  1. Costco mark up is up to 16% => One can hardly find products at the same quality cheaper elsewhere;
  2. Costco carries only a very limited number of items/brands => scale economies and higher negotiating power with suppliers;
  3. Costco has a refund/replacement policy for the life-time of a product => it costs you little if any to try out a new product from Costco.
From #2 & #3 above, one has the feeling Costco is pre-screening well the products competing for a place on its shelves; otherwise it could not have stayed in business for this long.

All in all, there is value in numbers, that is small numbers...

1 comment:

joe said...

last i checked, costco strived for a 12% gross margin, not 16%.

and you can absolutely, positively not beat the prices or quality from them. plus, they treat their employees well.