Costco 2007 Annual Report Download - page 11

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Our merchandising strategy is to provide our members with a broad range of high quality merchandise
at prices consistently lower than could be obtained elsewhere. An important element of this strategy is
to carry only those products on which we can provide our members significant savings. We seek to
limit specific items in each product line to fast-selling models, sizes and colors. Therefore, we carry an
average of approximately 4,000 active stockkeeping units (SKUs) per warehouse in our core
warehouse business, as opposed to discount retailers and supermarkets that normally stock 40,000
SKUs or more. Many consumable products are offered for sale in case, carton or multiple-pack
quantities only.
In keeping with our policy of member satisfaction, we generally accept returns of merchandise. In fiscal
2007, we introduced a 90-day return policy in the United States on certain electronic items.
Additionally, we now provide, free of charge, technical support service, as well as an extended
warranty on certain electronic items.
The following table indicates the approximate percentage of net sales accounted for by major category
of items:
2007 2006 2005
Sundries (including candy, snack foods, tobacco, alcoholic
and nonalcoholic beverages and cleaning and institutional
supplies) .......................................... 23% 24% 25%
Hardlines (including major appliances, electronics, health and
beauty aids, hardware, office supplies, garden and patio,
sporting goods, furniture, and automotive supplies) ....... 21% 20% 20%
Food (including dry and institutionally packaged foods) ...... 19% 19% 19%
Softlines (including apparel, domestics, jewelry, housewares,
media, home furnishings, cameras and small appliances) . . 11% 12% 12%
Fresh Food (including meat, bakery, deli and produce) ...... 12% 11% 11%
Ancillary and Other (including gas stations, pharmacy, food
court, optical, one-hour photo, hearing aid and travel) ..... 14% 14% 13%
Ancillary businesses within or next to our warehouses provide expanded products and services and
encourage members to shop more frequently. The following table indicates the number of ancillary
businesses in operation at fiscal year end:
2007 2006 2005
Food Court and Hot Dog Stands ......................... 482 452 427
One-Hour Photo Centers ............................... 480 450 423
Optical Dispensing Centers ............................. 472 442 414
Pharmacies .......................................... 429 401 374
Gas Stations ......................................... 279 250 225
Hearing-Aid Centers ................................... 237 196 168
Print Shops and Copy Centers .......................... 8 9 10
Number of warehouses ................................ 488 458 433
Warehouses operated by our Mexico joint venture are not included above. At September 2, 2007, our
50% owned joint venture in Mexico operated 30 warehouses.
Our electronic commerce businesses, costco.com in the U.S. and costco.ca in Canada, provide our
members additional products generally not found in our warehouses, in addition to services such as
digital photo processing, pharmacy, travel and membership services.
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