Ben Gilbert: evaluation

Transcript context

…Which is so awesome and also different from other retailers. Now there are all sorts of fancy technology systems to do this, but Costco has always been able to track customer spend at the individual level because they're all members. They have accounts for all of them. A hundred percent. Other people might invent something like this to say, well, we're going to bet that they won't use it. They won't shop here enough, and we'll get to make some money on the people who are infrequent shoppers. We're excited about that, and we'll basically get the breakage on people who pay for the upgraded membership but don't shop enough. That's not at all what Costco is doing here. To illustrate that, here's the insane part of it. If you do not use it, they will refund it. Is there anything more Costco than that? It is an amazing value for members. It is such a good value that 55% of US members now do it. But much like everything else we've talked about with Costco, it is also amazing for Costco, because they get your money at the beginning of the year further advantaging their cash flow position. It gets even better because it makes you more likely to go shop there now since you get even better deals with the cashback. Effectively, instead of getting the 14% gross margin, Costco is now only making a 12% margin on you when you shop there. As long as you're spending $3000 or more, it basically just makes Costco's margin even lower for everything you purchase. Interestingly, 45% of paid members worldwide are executive members, but those members represent 73% of sales. Whether by causation or correlation, executive members just spend more. Estimates are that regular members buy less than 1/3 of what executive members do. It's this fascinating customer segmentation thing, where Costco just gets to know and reward the most frequent shoppers who do the highest volume purchasing. Executive members, as you would guess, also renew at a higher rate. It helps with retention. On top of that, which they call the triple play membership. These guys are so folksy. I love it.…

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