4 Quirky Things That Make Costco One of the Most-Successful Retailers -- Including a New Rule That Impacts Most of Its Nearly 80 Million Members

Key Points

• The global addressable opportunity for the retail industry is forecast to approach $37 trillion by 2030.

• Costco's path to success has been unlike any other retail titan, with its quirks endearing customers to its brand.

• A newly implemented rule offers a special privilege for its highest class of cardholders.

• 10 stocks we like better than Costco Wholesale ›

Retail is one of the most-competitive industries on the planet. But with a global addressable market of nearly $37 trillion by 2030, based on estimates from Mordor Intelligence, it's not hard to understand why retailers want to ensure their piece of the pie.

Most retail ventures will end in failure. Data from the U.S. Bureau of Labor Statistics from 2024 showed that more than 58% of "retail trade" businesses failed within their first 10 years. However, when a retailer succeeds, the sky can be the limit, as Amazon, Walmart, and Costco Wholesale (NASDAQ: COST) have decisively shown.

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But it's Costco that stands out among the retail goliaths as having the most unorthodox path to success. Everything from unexpected items for sale to unusual rules have helped piece the puzzle together to make Costco one of the most-influential retailers in the world.

What follows are four of the quirkiest things that make Costco Wholesale special, including its newest (and somewhat controversial) change that impacts many of its 79.6 million paying members.

Image source: Costco.

1. Costco doesn't want your money if you're not a member

Most retailers will take your money any way they can legally get it -- but not Costco. In order to shop in its warehouses, you'll need a membership ($65 annually for gold star cardholders and $130 yearly for executive members). This goes for guests, as well. Whie you're allowed to bring up to two guests, the only one capable of making purchases is the cardholder.

There are a couple of specific reasons Costco has drawn an unwavering line in the sand when it comes to its memberships.

Firstly, the lion's share of membership revenue flows straight to its bottom line. Costco purposely keeps its margins low on groceries to undercut local retailers and national grocery chains on price, with the goal of attracting new shoppers and retaining existing members. To sustain its low prices and margins on popular basic need items, it relies on the juicy margins received from annual membership fees.

Another reason memberships are important is because they incent shoppers to visit Costco before all other retailers. If you have to pay $65 or $130 annually for the right to shop somewhere, you're incentivized to get as much out of your membership as possible. This means Costco will be the destination for most big shopping trips -- and it only takes a few discretionary purchases to boost the profitability of your visit.

Despite a razor-thin operating margin, Costco has held firm on the price of its famous hot dog combo. COST Operating Margin (Quarterly) data by YCharts.

2. The $1.50 hot dog combo has a cult-like following

Out of all the quirky things Costco Wholesale is known for, its $1.50 hot dog and soda combo might top the list. You could argue that this food court staple has its own cult-like following.

For 41 years, Costco has kept the price of its famous hot dog combo frozen at $1.50, and it's had to jump through quite a few hoops to do so. For instance, in the late 2000's, Costco shifted away from Hebrew National as its hot dog supplier and took its production in house via its private label Kirkland brand. Interestingly enough, the lower costs associated with its Kirkland brand help to buoy its traditionally thin grocery margins.

Costco has also changed its soda supplier in an effort to keep the price of this cult-favorite combo static. In 2013, it shifted away from Coca-Cola to PepsiCo beverages, presumably to save on costs. Earlier this year, CEO Ron Vachris confirmed his company would be switching back to Coke products, with this food court change commencing in July.

Lastly, Costco announced last year that it would only allow members to purchase food court items (including the hot dog combo). This move was made to further enhance the value of a Costco membership and to keep costs down.

Image source: Getty Images.

3. You'll find some truly unique items for sale inside Costco's warehouses

Beyond the nostalgia of the $1.50 hot dog combo, the company is also known for selling luxury, one-off, and quirky items in its warehouses. Although these items, generally, don't offer meaningful margins, they do provide a sense of intrigue to shoppers and get people talking about Costco.

For example, you probably don't think of buying gold bars when heading to Costco. However, one of the most-popular and sought-after items the company introduced in late 2023 is one-ounce gold bars, which can be purchased online and in some of its physical warehouses. Demand for gold bars was so overwhelming that it's also moved into selling other precious metals, such as silver coins and platinum bars.

Costco warehouses also carry high-end jewelry and luxury watches. The catch is it's a game of chance as to what you'll find. Whereas you can walk into a jewelry store and looks at dozens or hundreds of diamond rings, you might find a one-of-a-kind diamond ring inside Costco, or perhaps a luxury timepiece.

The mystery of what unique items the Costco near you will have inside acts as a lure (and talking point) for shoppers.

4. Executive cardholders receive a special privilege other members lack

The final quirk that's made it such a phenomenal business and Costco stock a superb long-term investment (shares are up more than 8,900% since its public debut in December 1985) is its special treatment for its highest class of cardholders.

Ponying up $130 for an executive membership allows cardholders to earn up 2% back on most purchases totaling up to $1,250 annually. Additionally, executive members are eligible for a $10 monthly credit on select delivery orders of at least $150, and they can qualify for discounts on various travel packages.

But perhaps the biggest privilege of all for executive cardholders is the newly implemented rule (as of Sept. 2) that affords them special shopping hours. On weekdays and Sundays, executive cardholders can exclusively shop in Costco's U.S. warehouses from 9 a.m. to 10 a.m., with a 30-minute window of 9 a.m. to 9:30 a.m. on Saturdays. This new rule impacts most of its nearly 80 million members, with gold star members now being turned away during these early morning hours.

Though executive memberships account for only 47% (37.6 million) of Costco's paying cardholders, they were responsible for 73.1% of total sales in the fiscal third quarter (ended May 11). It's in Costco's best interests to keep its top spenders happy, as well as subtly encourage gold star members to take the plunge and upgrade their membership.

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Sean Williams has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.