Eleven years later, the retailer's strategy seems essentially unchanged, according to a new report from Fortune that takes a deep dive into Costco's business.
We pulled from the report the six major ways Costco sets itself apart from its competitors.
Only offer a limited number of items. Costco sells just 3,700 products compared to 140,000 at Walmart or 500 million options at Amazon, according to Fortune. Fewer items increases sales volumes and helps Costco get better bargains with suppliers.
Keep mark-ups low. Fortune reported the average markup at Costco is 11%, compared to nearly 24% at Walmart, 30% at supermarkets, and 35% at Home Depot and Lowe's. Lower markups may mean lower profit margins in the short term, but they also help boost customer loyalty over time.
Make customers pay for membership. Costco's 81 million memberships account for nearly 3% of its profits, according to Fortune. The membership model helps build customer loyalty and provides a guaranteed source of revenue for the retailer.
Pay workers well. The average pay for Costco workers is $22 per hour, compared to $13.38 at Walmart, Fortune reported, which has helped the retailer keep its employees. The company has a 94% retention rate for employees who have been at the company for a year. The average retention rate for hourly employees across the retail industry is 45%, according to advisory firm Korn Ferry.
Don't advertise. This allows Costco to save on marketing.
Aim for high-end customers. Costco's focus on quality and a handful of brand names means it attracts more upper-middle class customers who are cost-conscious, but can afford to spend a significant amount money on each shopping trip.
35 best deals at Costco
35 best deals at Costco
1. Organic Maple Syrup
Costco's Kirkland brand of maple syrup should be on any pancake lover's list, said CouponSherpa.com savings expert Kendal Perez.
"I've paid $11 to $14 for small bottles from Walmart and King Soopers. Yet, Costco sells a 33.8-ounce jug of Kirkland organic real maple syrup for less than that. It's a steal. Period," said Perez.
If you can handle buying two dozen at a time, Costco's organic eggs are a good deal, said Perez. She said Costco sells a 24-pack of organic eggs for only a dollar or so more than what other places charge for a dozen organic eggs. How's that for saving on groceries?
Perez said she used to buy Justin's almond butter from Sprouts Farmers Market for $11.
"Now, we buy a 27-ounce jar of Kirkland's almond butter for less. Even Walmart can't compete. Their price for Justin's almond butter is about 75 cents per ounce, compared to just 37 cents per ounce for [Costco's] Kirkland brand," said Perez.
Perez said walnuts at Costco are as healthy for your wallet as they are for your body. She used to buy walnuts only when they went on sale at other places, but recently, she has found that Costco's regular price per pound on walnuts beat out sale prices at other retailers.
Perez said she stocks up on Costco's organic frozen fruit, including cherries and blueberries.
"Most 3-pound bags of organic fruit cost a dollar less than the non-organic frozen fruit I've purchased from King Soopers," she said. "Even Walmart's Great Value frozen fruit is priced slightly higher than Costco's organic offering."
If you enjoy cooking with a light oil, Costco's Chosen Foods avocado oil is a smooth deal at under $10 for a 33.8-ounce bottle, said Perez. Amazon sells a two-pack of this product for almost $4 more per bottle, plus charges $8.49 shipping, she said.
Honey is a sweet deal at Costco. "We purchase raw, unfiltered local honey from Costco, priced at 24 cents per ounce, for 48 ounces," said Perez. Thanks to Costco, she's saving nearly 50 percent compared to what she was paying elsewhere.
Good cheese at a good price is Perez's assessment here. "At a little over $10 for 2 pounds, it's a far better value than what can be found elsewhere," she said. "For example, Wegman's in New York sells a 1-pound block for $9.49, while iGourmet sells 8 ounces for $9.99."
If you like chocolate, then this might be a great deal for you, said Perez, who recommended these snacking chocolates that come in varieties such as pumpkin seed and almond/sea salt. "At a little over $8 for a 17-ounce bag, it's a steal compared to Walmart's $4.28 for 4.7 ounces," she said.
Buying LED bulbs at Costco is a bright idea, said Perez, especially if you time it right.
"It's best to stock up on these bulbs when your energy company is offering a rebate," she said. "For example, the LED 60-watt bulbs that fill every lamp in our house were purchased for $3.99 per 4-pack, or less than $1 per bulb. The stars have to align again to get this price, since the current price with an $8 rebate is $6.99 per 4-pack."
It's not a guaranteed deal, but Perez said it's always worth checking Costco Travel for its rental car prices.
"Some offers are better than what you can find directly from rental car companies, though not always," she said. "For example, renting an economy car from Alamo for three days from Ontario International Airport in California costs $150 when you book online with Alamo. The same reservation costs just $52 through Costco Travel."
Sometimes, even pulling cooked meat from the bone is too much after a hard day at the office.
"Not only is taking the chicken off the carcass of a rotisserie chicken a slippery mess at times, but [it] can also be time consuming to get all the meat off the bone. Save time and a mess by scoring this awesome Costco hack," said Sherin, who marked this down as a top deal.
How aggravating is it when the ink you buy for your printer is more expensive than the printer itself? Well, Costco can help, said Sherin.
"If you know you will be sticking with the same home printer for a while, your best bet is [to] stock up on ink from Costco," she said. "You'll end up saving a few dollars per cartridge when you buy in bulk."
If you want to pick up a more classic oil for your dishes at a bargain, look no further than Costco's olive oil selections. "Extra virgin olive oil can be a great deal at only $15 for a 2-liter bottle. Keep your eye out for this deal and get ready to cook," said Sherin.
Popeye's favorite superfood — and kids' least favorite — is healthy for your bank account. Costco sells it cheap, said Sherin. "You could almost buy 3 pounds of spinach for the price of 1 pound at Walmart," she said.
Itching to surf but don't want to pony up hundreds of dollars for a new — or even used — surfboard? Hit up Costco on the way to the waves and pick up a Wavestorm 8-foot soft top surfboard for under $150. It's safer than a hard board, and you'll have a few hundred bucks left over for lessons.
Whether it's jeans, socks or sweatshirts, Costco deals on clothes are often a good fit for your budget, said Sherin. She said you can usually find good quality at a great price in many categories. To get even better deals, watch for Costco sales.
From black beans to chunk tuna, the canned food selection at Costco offers a lot for the money, said Benjamin K. Glaser, features editor at DealNews.com. He said if you have room to store them, stocking up on canned goods is usually a good deal.
Costco usually carries quality paper towels for a great price, said Glaser. You will have to buy these in bulk, and that can get, well, bulky. So again, Glaser said to make sure you have room to store them.
Babies are small, so why do they come with such a big cost? Costco can help bring down your baby expenses. Glaser recommended checking Costco prices on diapers, formula and more before shopping elsewhere.
Here's another item that's a great deal at Costco and is safe to stock up on, said Glaser. Costco usually has a few kinds of pasta you can choose from to stock up for dinner parties — just plan to buy in bulk.
Like paper towels and other paper products, Costco has good deals on toilet paper and carries quality brands, said Glaser. You will have to buy in bulk, but it keeps, and it's not an item that goes unused.
Cleaning might not be fun, but it doesn't have to be costly, thanks to Costco deals, said Glaser. Costco even carries some eco-friendly brands, like Seventh Generation and ECOS, so you don't have to sell out the environment to get a good deal.
Whether it's kitchen knives, end tables, bath towels or throw pillows, Costco has quality goods at a good price, said Sherin. She said you should, of course, always check to see if there is a smokin' sale somewhere else. But for regularly low prices on home goods, Costco is a good bet.
There are some areas where Walmart is beating Costco, most notably in e-commerce, where Costco has been slow to invest. Walmart has invested a lot in online shopping, shelling out more than $3 billion to acquire Jet.com in August.
Ultimately, analysts say Costco's ongoing success is intrinsically linked to its business formula.
"Costco's model remains as relevant today as it was 20 years ago," UBS retail analyst Michael Lasser told Fortune, "and we don't think that is really going to change."