There are currently 914 Costco locations  worldwide. They have opened warehouses in  

14 countries and within North America, there's  usually at least one store within every major  

metropolitan area and each one of them has  changed the economy directly surrounding it  

in some unintuitive ways. Their busiest location  by far is probably not where you would expect it.  

It's actually down here just on the outskirts  of Honolulu in Hawaii. Despite being only the  

56th largest city in America and having three  other Costco locations within an hour's drive,  

there is a good reason why this particular  location does so much business. And that  

will all start to make sense as you unpack  Costco's unique approach to local economics.  

While the company doesn't release any official  data on individual stores, the best estimate that  

can be made from their public financials is that  this location alone did almost half a billion in  

sales within the last financial year. By revenue,  this would make this one single store larger than  

most public companies. For comparison, that's  more money going through these registers than the  

global operations of Denny's and Smith and Wesson.  Now, apart from being possibly the most American  

sentence I've ever spoken, it highlights how  these retail hubs can become a massive influence  

on a local economy, easily on par with other  major employers like factories or mines. But  

then the question becomes, is that influence for  the best? There's a well studied phenomenon that  

occurs when a big box retailer like a Walmart  opens within a local area. Because of their  

huge economies of scale and unassailable pricing  power, they force out smaller local competitors.  

The rate of business closures materially increases  on blocks surrounding a new Walmart location. And  

when they become the only employer in town,  it also pushes local wages down. This process  

is seen so consistently that economists  have simply dubbed it the Walmart effect.  

Now, you might look at a Costco and see another  large, low price big box retailers and reasonably  

conclude that their effect would be exactly the  same, right? Yes, of course, Costco requires a  

membership. But at their heart, they are both  large variety retail operations that compete  

by offering lower prices than their competitors.  However, despite these surface level similarities,  

the recorded effect of a Costco opening is almost  exactly the opposite. In 2023, Costco opened its  

851st location in GMA Prefecture, about an hour's  drive outside of Tokyo. This area had not been  

immune to Japan's wider economic stagnation. Wages  were suppressed and local businesses were running  

on razor thin margins. Despite being close to the  largest city in the world, GMA primarily consisted  

of small farms, run-down warehouses, and local  retailers serving local costconscious customers.  

But everything changed when the local Costco  was built. When the company went and plonked  

a massive superstore right in the middle of  what was a rice field, it radically reshaped  

the area. The first thing to change were local  wages. Unlike the infamous Walmart effect,  

Costco pays even its entry-level floor staff very  well. In Japan, these generous salaries were a  

big departure from most employers who hadn't  given broad pay rises since the 1990s. In GMA,  

people could work for the equivalent of $6.50 US  an hour in local stores, farms, or warehouses. Or  

they could get a job at Costco, which was offering  a starting salary of $10 an hour. For most locals,  

the choice was pretty clear, which forced  surrounding businesses to raise wages to keep  

their staff. Within the first 3 months following  the opening of Costco, local businesses reported  

paying their staff 40% more than they had before.  Now, you might have expected that this would  

strain these small businesses that were already  struggling to keep the lights on. But again, the  

opposite was true. Most of them saw a significant  increase in foot traffic and revenues after this  

center opened. Unlike a Walmart or other similar  retailers, Costco stores become a destination,  

attracting shoppers from a much wider area rather  than just serving the community that was already  

there. A trip to Costco is something that average  shoppers plan for in advance and don't do nearly  

as frequently as going to a regular retailer, and  that's reflected in the data. The market research  

firm Numerator found that Costco shoppers went to  the store half as often as Walmart shoppers. But  

when they were there, they spent more than twice  as much on average. This data also self- selects  

for the fact that Costco shoppers need to pay a  membership and a lot of them will also shop at  

a Walmart or similar local alternative for their  day-to-day needs. What this all means is that for  

an outofthe-way town like GMA in Japan, a Costco  acted like a magnet attracting people from more  

populated areas to come and do their shopping.  Once they driven more than an hour from their  

home to get there, some of these customers were  more motivated to make a day out of it by grabbing  

lunch at a local restaurant. assuming they didn't  feel like a 200 yen gizzy in the Costco cafeteria.  

Now, this particular example was in Japan, but  across the world, the same effects are routinely  

witnessed. A Costco raises the floor on wages, but  it makes up for it by bringing in more customers  

to an area. Now, especially in lower income  areas, a new Costco also lets local businesses  

do something else that's just as important as  it is unintuitive. It lets them raise prices.  

Now, I promise I'll explain how that can be a good  thing. But to do that, we also need to address a  

bigger question. A company can't run off good  vibes and helping out the little guy because  

it's a nice thing to do. So, what's in all of this  for Costco and their shareholders? It's not just  

Costco that gets your data when you sign up for a  membership. Hundreds of companies hold your data,  

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It's easy to anthropomorphize businesses and  conclude that one has a nicer intention than  

the other, but the reality is that all public  companies are beholden to their shareholders  

who want to see maximized returns. The difference  only comes from how they achieve that goal. Costco  

has cultivated a very good reputation with its  employees and customers thanks to the way it's  

approached the market. in what limited public  relations they do. The company is always quick  

to highlight their simple four-point code of  ethics. Obey the law, take care of our members,  

take care of our employees, and respect our  suppliers. It sounds reasonable enough, but  

here's the thing. Almost every large public facing  company in the world has something similar. Here's  

Walmart's. Here's Tesco's. Here's Loheed Martin's.  And here is or was Enrons. These are basically  

always just standardisssue corporate w to give new  hires something to read on their first day in the  

office. But Costco might actually be slightly  different because of one line that most people  

would probably ignore. If we obey the law, take  care of members, employees, and suppliers, then we  

will achieve our ultimate goal, which is to reward  our shareholders. Credit where credit's due. They  

are being honest that the only reason they are  not openly breaking the law is because it's just  

bad for business. By that same logic, they aren't  building up local economies and wasting billions  

of dollars on higher staff salaries every year for  the warm fuzzies. They're doing it because it's  

good business. They are doing it to achieve their  ultimate goal of rewarding their shareholders.  

Higher wages are a calculated choice which works  in their business for three reasons. The first  

is that it does give them a bit of good PR. The  brand perception of Costco is very valuable and it  

helps to keep their members renewing every year.  When it comes time to pay that annual fee again,  

a lot of people won't mind if they think they're  supporting a business that supports their people.  

Doing whatever they can to maintain memberships  is critically important because the rest of the  

business effectively breaks even after accounting  for their self-inflicted low margins and higher  

than average expenses. But beyond that,  competitive wages are a calculated decision  

to cut down on staff turnover. And all you need to  see this is to look at it both ways. On one hand,  

they pay their staff well above industry standard  rates for a job that doesn't require a college  

degree. But on the other hand, their staff won't  be able to find another job that pays as well  

unless they get a college degree. This means  Costco is effectively buying staff loyalty,  

which for them has been a very good purchase.  Hiring and training new staff to work across their  

stores takes a lot of time and it's not cheap. The  industry standard churn rate for retail employees  

in big box stores is 60% which means if 100 people  start at the beginning of the year only 40 of them  

will be left at the end. At Costco, by comparison,  that churn rate is only 5.5% saving them more on  

training and hiring expenses than they lose  through those higher wages. But then if just  

paying a good wage actually saves the business  money, why don't the other big retailers do  

the same? Well, a report by the Harvard Business  Review actually looked into that exact question,  

and they found that it only really worked for  certain business models. Walmart, by comparison,  

runs on a churn and burn model that goes all the  way up to the store level. Costco rarely, if ever,  

shuts down a store once it's established. And in  the rare instances where they do, it's usually  

only because they've moved to a bigger location  in the same area they'll be operated by the same  

staff members. Walmart, by comparison, closes  down stores all the time, and the roles that  

the team members play are more compartmentalized  and easier to replace. There's also a greater  

promise of career progression. Walmart has more  than seven times as many stores, which means  

seven times as many management positions up for  grabs. Those management roles pay extremely well,  

and for some people, it makes slugging it out  in a minimum wage job worth it to justify the  

opportunity to climb up the ladder. Costco, by  comparison, doesn't pay its management staff as  

competitively, and there are just naturally fewer  positions on offer anyway because they run fewer  

locations. This means Costco needs to keep its  staff satisfied with the job they have rather  

than one they could potentially get. Now, whatever  the business reasoning, the effect on the local  

economy is still the same. A lot of people earning  a good wage has a lot more of an impact than two  

or three people earning an astronomical wage. But  again, for Costco, this is all part of the plan.  

Costco is not in competition with local business.  In fact, it relies on them. A large portion of  

their overall revenue is driven by those same  businesses stocking up on their own supplies.  

Costco blurs the line between a wholesale outlet  and a retail store, which is ideal for small  

hospitality businesses in particular, who may  not have the scale to order in bulk directly  

from suppliers. This symbiotic relationship is  further supported by another big misconception  

about the business. Costco is famous for having an  extensive variety of products on offer, from gold  

bars and fine jewellery to coffins and your annual  supply of lur roll. It seems like you really can  

buy anything from these stores. However, Costco  actually offers far fewer individual items than  

other big box retailers. Walmart manages  over a 100,000 different stocking units,  

Amazon manages 600 million, while Costco only  maintains around 4,000. One of the reasons for  

this is that while something like a jar of Nutella  might be offered in several different sizes at a  

regular grocery store, at Costco, you're getting  it in a one-sizefits-all bucket or you're not  

getting it at all. This leaves an opportunity  for local businesses to fill in niche markets,  

often by breaking up and selling the same items  they purchased from Costco warehouses. A 2019  

study published by the University of Massachusetts  and the National Bureau of Economic Analysis found  

that after a Costco opened in a local area, prices  at local businesses rose. But the reason why this  

was happening was because the Costco allowed them  to move into higher margin products. People coming  

into the area on a shopping trip in addition  to the staff earning good wages simulated local  

demand. And more importantly, there wasn't the  same need to supply budget items to cost conscious  

consumers. If people needed groceries, they would  go to Costco. But if they wanted something more  

unique, they would still need to patron local  businesses. In plain English, prices rise,  

but buyer power is maintained because people have  more money and a cost-effective supply of the  

essentials. It's almost like Costco is gentrifying  an area in the best way possible. Back in Hawaii,  

this effect is particularly strong. Due to the  logistical challenges of getting consumer staples  

shipped into the middle of the Pacific Ocean, a  bulk supplier like Costco has become a lynch pin  

for both consumers and small businesses. Prices  are still much higher here than they are on the  

mainland, but they are significantly better  than dozens of individual businesses trying  

to organize their own shipping. In its own weird  way, the world's busiest Costco has also become  

a tourist destination in its own right. Most big  box retailers can't get people to travel more than  

15 minutes to do their shopping without it being  too inconvenient. Costco can get people to travel  

across half an ocean. It's all the result of a  business plan made to maximize shareholder value  

just like any other, but has been undeniably  effective. However, for all its successes,  

it's still not as large or dominant as Walmart,  a company that has been the counterpoint to  

everything that made Costco successful. Watch this  video next to find out how they did everything  

differently and still became one of the most  powerful private economic entities in the world.