How Costco works

 

StockMarket.News

@_Investinq

Costco revealed how it controls the prices of almost everything you buy. This is one of the most important things you will hear about how consumer prices actually get set (Save this). Kirkland is an $80 billion brand that strikes genuine fear into some of the largest companies in the world. When Costco announces it is entering your product category with a Kirkland version, national brand suppliers immediately cut their prices because they have no choice. Some suppliers would rather Costco never entered their category at all. Costco caps its own profit margin at 14% on every single product in the store, with Kirkland being the only exception at 15%. That one internal rule forces Costco buyers to compete on volume instead of squeezing the last dollar of margin out of every transaction. Their buyers are not rewarded for being greedy, they are rewarded for moving as many units as possible at the lowest price. That is the complete opposite of how almost every other major retailer in America operates. Costco buyers also monitor raw commodity markets, coffee prices, protein costs, ingredient inputs and they launch Kirkland products precisely when national brands are raising prices while their own costs are actually falling. They are hunting windows of opportunity to expose price gaps being exploited by the biggest brands in the world. The executive gave one specific example that tells the whole story. Costco was developing a bacon, egg, and cheese breakfast sandwich to compete with the national brand equivalent. The initial version matched the national brand on protein content, and the executive rejected it. The team went back, renegotiated the supplier deal, added 40% more protein to the sandwich, held the exact same price, and launched it successfully. Every time a Kirkland product enters a category, the national brand sitting next to it on the shelf receives a signal, match our quality or justify your price premium publicly. The brands that cannot do either slowly lose their customers. The executive called it a halo effect, but the pressure it creates on suppliers is anything but gentle. National brands are essentially forced to stay competitive just to earn the right to sit on the same shelf as a Kirkland product. For 30 years, Walmart and Target have watched this exact model and have not been able to replicate it at the same scale.

Trung Phan

@TrungTPhan

·

14h

Reminder Kirkland Signature did $90B in 2025, more than Boeing ($89B), FedEx ($88B), T-Mobile ($88B), P&G ($84B) or Wells Fargo ($80B). Costco’s CEO explains white-label strategy: caps Kirkland margin to 15% (usually single-digit % for supplier w/ focus on volume) spend years to develop a product (Costco demands manufacturer make at least one part of offering superior to competing national brand from same manufacturer; he said for a breakfast sandwhich, Costco got “40% more protein” on the bacon) Costco buyers look for where the market price is rising over time relative to inputs (basically keeps competitors in check for any vertical it enters) Long been rumoured that Costco taps the top brands themselves to manufacturer (eg. Titleist for golf balls, Grey Goose for vodka…but both have denied). Costco CEO Ron Vachris says two vertical he wanted Kirkland to do were razors and consumer electronics. Hasn’t cracked yet. For real, a 60” Kirkland Signature flatscreen TV might get driven to under $100.

Space X origins

 

Anish Moonka

@AnishA_Moonka

Three days ago, Elon Musk announced Terafab, a $25 billion chip factory that would produce 70% of TSMC's entire global output from a single facility. In 2003, he gave a talk at Stanford with 30 employees and a $6 million rocket. Musk is 32. SpaceX has 30 people. No lawyers. They've test-fired engines and built tank structures, but Falcon 1 hasn't launched yet. He's selling flights for $6 million each. His nearest competitor charges $25 million for less capability. He offers the Stanford audience a rocket if anyone's buying. Then adds: "There's not a lot of viral marketing that's going to happen with a rocket. I'm hoping, but I'm not counting on it." He starts with Zip2. In 1995, he deferred his PhD at Stanford to start an internet company. VCs on Sand Hill Road hadn't heard of the internet. He had no money. Negative money, because of student debt. He couldn't afford both an apartment and an office, so he rented the office, slept on a futon, and showered at the YMCA on Page Mill and El Camino. "I was in the best shape I've ever been. You get a shower, a workout, and you're good to go." They drilled a hole through the floor to the ISP below them and ran a cable for internet. $100 a month. Six people total: him, his brother, a friend of his mom's, and three salespeople hired from a newspaper ad. Sold to Compaq in 1999 for over $300 million cash. "That's a currency I highly recommend." Then PayPal. The email payments feature took a day to build. One day. It was supposed to be a side feature. The main product was an all-in-one financial portal that included banking, brokerage, and insurance. They'd demo the portal, and people would go "ho-hum." Demo the email transfer, and people would go "wow." So they dropped everything else. No VP of sales. No VP of marketing. Zero advertising spend. A million customers by year two. Sold to eBay for $1.5 billion. Then he gets to space. He says he started researching why space hadn't progressed since Apollo. In the 60s, humanity went from nothing to the moon. Then stopped. Every other technology sector improved by orders of magnitude. Computers went from filling rooms to fitting in pockets. Space went sideways. He wanted to know why. He tried to buy a Russian ICBM. Three trips to Moscow. "On the range of interesting experiences, negotiating for a refurbished ICBM is pretty far out there." The deal fell apart. On the flight home from the third trip, he asked himself why America couldn't build a cheaper rocket. "It's not like we drive Russian cars or fly Russian planes." So he started SpaceX. Thirty people. No lawyers. They outsource heavy machining and welding but do all design, analysis, testing, and launch operations internally. He describes the cost philosophy in one line: "There's no one silver bullet. It's really hundreds of small innovations." Ethernet inside the rocket instead of the copper cable bundles as thick as your arm running the full length of every other launch vehicle. Simpler structures, so fewer things break and fewer things to buy. Even if SpaceX did everything exactly the same way as Lockheed or Boeing, they'd still be dramatically cheaper just from having an order of magnitude less overhead. He tells the room: "The fastest way to make a small fortune in the aerospace industry is to start with a large one." Then, almost offhand, he describes SpaceX's endgame. The "Holy Grail objective" is to build the successor to the Saturn V to set up a moon base or conduct a Mars mission. He dismisses space mining and space solar power as economically unworkable. The real opportunity, he says, is a self-sustaining civilization on another planet. "Then you've got basically interplanetary commerce going on." Trillion-dollar level. That was 30 employees and an untested rocket. Last Saturday, Musk stood in a decommissioned power plant in Austin and announced that Tesla, SpaceX, and xAI would build a chip factory targeting one terawatt of computing output per year. He said all existing chip fabs on Earth produce about 2% of what his companies will need. Eighty percent of Terafab's output would go to space-based AI satellites. Estimated cost: $20 to $25 billion. No construction timeline was given. Tesla's CFO confirmed the cost isn't in the 2026 capital expenditure plan yet. The SpaceX that showed up at Stanford in 2003 had 30 people and a rocket that cost less than a nice house in Palo Alto costs today. The SpaceX that showed up in Austin last Saturday is co-building the largest semiconductor fab ever attempted. Same guy. Same instinct: if nobody's building it fast enough, build it yourself. Video: Elon Musk at Stanford's Entrepreneurial Thought Leaders Series, 2003. Original footage from Stanford University.