How a membership-only warehouse became the world's third-largest retailer through extreme exclusivity
Costco is not just a store; it is a membership machine. By restricting access to paying members and focusing on bulk wholesale, the company has built a retail empire that generates the majority of its profits from fees rather than product markups, redefining the modern big-box shopping experience.
Founded in 1983 in Seattle by Jim Sinegal and Jeffrey H. Brotman, Costco emerged from a lineage of wholesale clubs, most notably the Price Club. The company’s business model is built on a foundation of extreme efficiency and exclusivity. Unlike traditional retailers that rely on high margins, Costco historically kept markups on goods to just 8 or 9 percent, prioritizing volume and membership loyalty. This strategy proved so effective that the company became the first to grow from zero to $3 billion in sales in under six years.
The core of the Costco engine is its membership fee, which provides a reliable, recurring revenue stream that accounts for the vast majority of its net operating income—65.5 percent in 2024. To protect this model, the company has recently tightened access, replacing card-showing with mandatory QR code scanning at entrances and restricting food court access to members only. These measures are designed to bolster the value of the membership, which now includes over 145.9 million cardholders as of February 2026.
Beyond the standard warehouse, Costco has experimented with diverse formats to maintain its dominance. This includes Costco Business Centers, which cater to small business needs with distinct inventory, and the new Home Showroom format, which allows members to inspect bulky furniture and appliances before ordering them for delivery. The company is also pushing into mixed-use real estate, breaking ground in 2024 on a project in Los Angeles that integrates 800 residential apartments above a warehouse. As it navigates global markets, from its massive success in South Korea to its evolving strategy in China, Costco remains a master of adapting its rigid, warehouse-based identity to fit new urban and consumer demands.
Source: Costco
