Costco 2002 Annual Report Download - page 5

may also provide us with a number of furniture and accessory items that can be carried in our 400-plus regular warehouses
and greatly enhance our current furniture department. Sales results on the opening four-day weekend far exceeded our
expectations.
On the merchandising front we continued to expand our ancillary departments, opening pharmacies, food courts, mini-
labs, optical dispensing, hearing aid and gas stations with almost all of our new warehouse openings, as well as adding a
number of these operations to existing warehouses where space and regulatory restrictions permitted. Sales at our e-
commerce business increased over 80% in fiscal 2002, and was solidly profitable on a fully expense-allocated basis. We are
encouraged about this business and the many special and unique products we offer our members, with little investment in
inventory. Likewise, our in-warehouse special order kiosks allow our members to view samples of upscale merchandise in
several categories—such as chairs and sofas, window coverings, high-performance automobile tires, and high-end plumbing
fixtures—and place their orders while shopping at Costco. This business excites us because it provides us the opportunity to
provide hundreds of additional products with little investment in sales space, labor or inventory.
During the past fiscal year we added nearly two million Gold Star (individual) and Business Members—making nearly
twenty million members worldwide. While a considerable percentage of our member increase is attributable to new ware-
house openings, we are pleased to report that membership renewals continued at our historically high rate of 86%. Also of
note is the increase in the number of Executive Members—now numbering over 1.75 million—who pay $100 a year for ac-
cess to a wide variety of member services, as well as earn a 2% reward ($500 maximum reward per year) on their qualified
purchases. In addition to the initial member services offered to our Executive Members—telephone service, auto buying,
check processing, auto and home insurance, credit card processing, real estate and mortgage services and payroll proc-
essing—we have added, or are testing in selected markets, healthcare insurance, financial planning, sharebuilding services,
retirement planning, computer training and roadside assistance—all at the highest quality and competitive pricing. We are
continually evaluating additional member services that would add further value to our growing Executive Membership base.
We are committed to doing the best possible job for our members, employees, supplier partners, and shareholders—all
in the context of strict adherence to the laws of the communities and countries in which we operate. We take these re-
sponsibilities very seriously. In terms of corporate governance, all of our management personnel have participated in ethics
and leadership training, and are continually reminded of our uncompromising standards of honesty and integrity. We also
want to share with you that corporate citizenship is high on our list of priorities. Costco is committed to diversity in the
workplace; and our employees are involved in many positive ways in the communities we serve. We believe that successful
companies give back to their communities, and we continue to expand our corporate-giving focus throughout our company.
In addition to strong, on-going programs with Childrens’ Hospitals and United Way Chapters around North America, Costco,
working with community leaders, has established college scholarship programs for disadvantaged youth in several commun-
ities. Also, Costco employees in many communities have been trained to effectively teach reading to struggling elementary
school children, and work with them on a weekly basis. We are very proud of the voluntary efforts of all our fellow asso-
ciates. These are but a few of our many involvements in corporate citizenship.
Lastly, it is with much sorrow that we inform you of the recent death of Fred Paulsell, Jr., an initial investor in Costco in
the early 1980’s, a founding Costco board member and close friend to many of us at Costco. We will greatly miss the in-
sights and counsel that Fred contributed to the success of Costco over these past twenty years. It is a great loss to our Com-
pany.
As always, we want to thank all of our fellow employees—now numbering over 100,000 and operating over 400 ware-
houses and providing support functions worldwide—for their hard work, dedication and discipline during these challenging
times. We also thank you, our shareholders, for your on-going support. We believe Costco made strong progress in fiscal
2002—achieving record sales and profits, expanding our operations in both new and in-fill markets, strengthening our bal-
ance sheet and positioning Costco for further long-term growth, profitability and increased shareholder value in the years to
come.
We look forward to seeing many of you at our Annual Meeting of Shareholders on January 30, 2003 in Bellevue,
Washington. Best wishes for a happy, healthy and peaceful Holiday Season and New Year.
Cordially,
Jeff Brotman Jim Sinegal
Chairman of the Board President & CEO
3