Costco 2005 Annual Report Download - page 5

In Canada, our infills were in Boucherville, Quebec and Langley, British Columbia; and we relocated our
South Edmonton and Mississauga, Ontario warehouses to newer, larger facilities. Overseas, we opened in a new
market in Kanazawa Seaside, Japan, as well as added infill buildings in Chung Ho, Taiwan and Bristol, England.
Our goal is to open twenty-five to thirty new locations in fiscal 2006, and we are already well on our way.
So far we have added eight new U.S. warehouses since the end of fiscal 2005 in August, all of which are infill
buildings except San Luis Obispo, California. They are in Pembroke Pines, Florida; Centennial, Nevada; Phoenix
and Chandler, Arizona; Hillsboro, Oregon; West Bountiful, Utah; and San Luis Obispo and La Habra, California.
We also replaced our Kalispell, Montana warehouse with a new unit, bringing our current fiscal 2006 U.S. open-
ings to nine.
Internationally, we continue our expansion and are seeing increasing success in each of the countries where
we do business. We started fiscal 2006 by opening warehouses in new markets in Milton Keynes, England and
Veracruz, Mexico, and we plan to open five to seven more international locations before the end of fiscal 2006.
At the same time, we are mindful of growing our infrastructure to support our warehouse operations. We
built a new, state-of-the-art meat plant in Tracy, California last Spring, enabling us to meet and exceed the latest
federal regulations for meat safety and significantly increasing our production capacity and efficiency. The
150,000 square-foot facility can hold up to three million pounds of frozen meat and enables us to process 20,000
pounds an hour. This fall we opened two new depots—one in Langley, British Columbia and one in Salt Lake
City, Utah. Both are cross-docking facilities with the latest in high-tech systems to give us additional cost and
time efficiencies in shipping products to our warehouses.
We have built our business on the excitement generated by truly great merchandising. In simple terms, that
means we source the right products at the right prices, stock them at the right time in the right place in our build-
ings, and ensure that they are of high quality and in good condition. Our members love the treasure-hunt atmos-
phere we create in our warehouses, where they can come in for a roll of paper towels and leave with a cart full of
high-value goods, everything from fine diamonds to fine wines to the latest high-tech toys. Our suppliers are our
partners in this process, and we are proud of the strong relationships we have developed with some of the finest
organizations in the world—companies like Canon, Casio, Coca Cola, Colgate-Palmolive, Dell, Fuji, Hewlett
Packard, Kimberly-Clark, Kodak, Lane, Levis, Michelin, Nestle, Olympus, Panasonic, Pepsi, Philips, Procter &
Gamble, Toshiba and hundreds more. New supplier relationships include Adidas, Calvin Klein Home, Calvin
Klein Sportswear, Carnegie Deli, Jones of New York, Kitchen Aid, Le Creuset, Lexington, Pioneer, Samsung
and Sony TV.
Certainly, one of the exciting sales trends in consumer electronics today is the rapid transition to high-
definition television, and we believe Costco is one of the best merchants in North America in this business. Our
fiscal 2005 sales in this product category were up 169%, and this growth increased our average sell price in the
TV category by 63%. We sold over 1.5 million TVs in fiscal 2005. Costco is also capitalizing on the rapid emer-
gence of digital photography, which is resulting in a host of new products and applications. Teaming our E-
commerce site with our warehouses, we now have the Costco Photo Center, accessible through costco.com,
where members can upload their images online and pick up prints at their local warehouse in as little as an hour.
This partnership helped our 1-Hour Photo sales increase by over 10% in 2005, in a year when the industry overall
showed negative sales growth.
Our E-commerce business, costco.com, continues to grow dramatically. Fiscal 2005 sales were $534 mil-
lion, a 42% increase over 2004. Costco.com has a high potential for significant growth, and we believe it can
become a leader in the E-commerce industry. We have established ambitious goals for this business over the next
five years, and we should see sales approaching $1 billion in the coming year. Current top sellers on costco.com
include computers, digital cameras and furniture, and we have added other very exciting new products, including
fine art pieces such as Picasso originals, musical instruments and Suzuki pianos, wedding flowers and flowers in
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