Costco 2003 Annual Report Download - page 5

sales from our “in-filling” strategy; and the return on investment for these new warehouses is generally higher
sooner than in new markets. In terms of the six relocations, these allowed us to increase the size of our sales
floor, improve access and parking, and add important ancillary businesses such as gas stations and optical
departments. In every case, we have experienced significant, double-digit increases in sales as a result of the re-
location.
In the United States, 19 new warehouses were opened in fiscal 2003: six in new markets (Avon and May-
field Heights, Ohio; Castleton and Fortune Park, Indiana; S. St. Louis, Missouri; and Carolina, Puerto Rico); and
13 in established markets (Tracy, Rohnert Park, North Fresno, Vacaville and Folsom, California; Avondale, Ari-
zona; Glenview and Naperville, Illinois; Everett, Massachusetts; Kirkland, Washington (the Costco Home store);
Ocean Township, New Jersey; Clearwater, Florida; and Wilsonville, Oregon).
Internationally, we believe that the Costco concept both fills a void in the distribution cycle and satisfies a
broad desire for American goods. In fiscal 2003, we opened five new international warehouses: one in the United
Kingdom (new market), two in Japan (new markets), one in Canada (existing market) and one in Mexico
(existing market). Our international sales continue to grow, and we see great potential in our international mar-
kets in the years to come.
Looking forward, we expect to spend more than one billion dollars during the current fiscal year as we plan
to open more than 25 new warehouses, situated in both existing and new markets. Twelve of these will be operat-
ing by calendar year-end, including two buildings in Mexico, two in California, and one each in Washington
(Costco Business Center), Virginia, Michigan, Alabama, Utah, Texas, North Carolina, and Quebec.
We are expanding in other areas, as well. Costco Home, a high-end furniture and accessories warehouse
with typical Costco pricing and values, opened in Kirkland, Washington in December 2002. This new venture
had good first year volumes and is already operating at a profit. In addition to helping us build and strengthen
vendor relationships in several furniture and home furnishings categories, we believe that this new format allows
us to test and, ultimately, introduce many of its successful items to our 400+ traditional Costco warehouses. We
are currently evaluating the opportunity to take this concept into other strong Costco markets on an individual
basis.
A new Costco Business Center debuted in Fife, Washington in November 2003, bringing our total for this
venture to five locations. Offering convenient delivery and containing print and copy centers, these units feature
an abundance of items chosen specifically for the small business and also carry specialty foodservice items that
are not found at our standard warehouses.
Fiscal 2003 sales were strong in all of our ancillary businesses, with total ancillary business sales topping
$4 billion, an increase of 20% over fiscal 2002. Our members like to shop Costco for pharmacy, gasoline, food
service, optical, hearing aid and 1-hour photo because they know we offer the best quality at the best price for
these services, just as we do on the other fine products we sell.
Many of you have probably seen television news programs, appearing in communities across the U.S., re-
porting that Costco’s pharmacy prices are the lowest in that market. These independent news reports underscore
the importance of our absolute pricing authority, which is a priority of Costco merchandising, whether in the
warehouse or, more recently, over the internet. Our Costco.com e-commerce site is profitable and frequently has
daily sales that are among the top ten units in the Company. Fiscal 2003 sales for this venture came in at $226.2
million, a 64% increase over 2002, making it one of the more successful “dot coms” today. Year-to-date in fiscal
2004, Costco.com’s sales are up an additional 62%.
All of these activities and businesses not only expand Costco’s presence in the marketplace, but also serve
to enhance the “treasure hunt” atmosphere at our buildings. Special-order kiosks, which were rolled out in 2002,
continue to provide our members access to hundreds of additional upscale items. Costco Road Shows, too, regu-
larly bring a variety of unique products to each of our buildings.
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