Why Costco Wants Its Margins to Stay Low

Costco sells over $269 billion of merchandise at an 11% gross margin — barely marking anything up — yet still earns more than $8 billion in net income. That shouldn't work for a low-margin retailer. This video digs into Costco's real profit engine, starting with the part of the business that isn't on any shelf: the membership fee. It traces how a subscription that costs almost nothing to provide became roughly half of Costco's operating income, and why the company's famously thin markups aren't restraint — they're the design that keeps the whole machine running. 0:00 A Retailer That Barely Marks Anything Up 0:52 The Obvious Explanation: Scale 2:05 The Number That Doesn't Fit 3:13 The Fee Is the Business 4:22 The Flywheel: How Loyalty Compounds 5:53 What Could Break the Machine 7:07 Why Low Margins Are the Strategy