Costco 2011 Annual Report Download - page 5

Membership program, which is now operating in the U.S., Canada, Mexico, and the United Kingdom.
Our Executive Members represent 34 percent of our member base, but produce a sales penetration of
66 percent.
Great merchandise and great service are what our members expect to find at Costco, and our
Company continues to expand its brand-name selections as well as its Kirkland Signature products to
exceed our members’ expectations. We listen to what our members are saying and find innovative
ways to bring them the items they want at exceptional prices. This year, some of the Kirkland Signature
items we introduced were Greek yogurt, organic beef patties, and peanut butter-filled pretzels. We also
created a small-batch seven-year-old bourbon that provided our members with a savings of 60 percent
over comparable national brands. Also offering a 60 percent savings is our new Kirkland Signature
premium digital hearing aid with Bluetooth capabilities that our members can purchase in our hearing
aid centers.
Costco’s e-commerce business (costco.com and costco.ca in Canada) continues to grow, and carries
a large selection of items that are usually not available in our warehouses. Our profits in this area
picked up in 2011 and showed particularly strong growth in Canada. We expect this aspect of our
business to grow substantially in the coming years. It is currently limited to the U.S. and Canada, but
we plan to expand into our international markets in the next few years.
Our ancillary businesses, encompassing our food courts, mini-photo labs, optical, hearing aid,
pharmacy, and gas station operations, are another key component of our warehouse mix. Combined,
they showed a sales increase of 24 percent in 2011. These ancillaries help set us apart from our
competition, help drive incremental sales and also bring in additional income. One of the big hitters this
year was our gas station business. We sold nearly $9 billion worth of gasoline in fiscal 2011, a sales
increase of 40 percent over last year. This is a very volatile market that requires a lot of finesse to
manage successfully, and we are pleased to have maintained strong profitability again this year. An
additional advantage of our gasoline operations is their contribution to warehouse sales, as it is
another factor in driving increased, in-store shopper frequency.
Our pharmacies continue to receive recognition throughout North America for their low prescription
prices. One contributing factor is our central fill concept; and we now have three central fill facilities that
service most of our West Coast warehouses, helping reduce the cost of a prescription refill by almost
half. Both our prescription and over-the-counter drugs showed strong sales and profit increases in 2011.
At its core, Costco is a company of exceptional merchants and operators, and it is our dedication to
efficient sourcing, shipping, displaying and selling of quality goods and services that makes Costco the
company that it is today. We are constantly monitoring the unique qualities of each country in which we
operate, capitalizing on opportunities, adjusting and enhancing our product mix, and adding new items
to meet our members’ needs. Our merchandise suppliers are our partners, and we continually seek to
add top quality vendors to our ranks. We have recently established direct relationships with Precor,
Cannon Gun Safes, Stanley Tools, Craftsman, Asics, Hartmann, Hurley and Spanx among other high-
end suppliers. Additionally, this year we introduced a co-branded product with both the Kirkland
Signature and the Cinnabon names on the package of Cinnamon Rolls sold in our bakeries; a co-
branded turkey breast with Foster Farms; a new ready-to-drink green tea in partnership with Ito En, a
leading Japanese food company; and finally, an assortment of canned soups that are co-branded with
the Campbell Soup Company.
We remain focused on selling national brand merchandise while developing the Kirkland Signature
brand to enhance member loyalty. After 19 years, our Kirkland Signature products now represent 15%
of the items we carry, but 20% of our sales dollars. We believe we have the capability of building our
sales penetration of Kirkland Signature products to 30% over the next several years, while continuing
to provide our members with quality brand name products that will always be a part of our product
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