Costco offers discounted merchandise to consumers who are willing to buy in bulk. This is extremely helpful to small business owners, but often scares off others. Due to this, the company has a very low profit margin of 1.9% that prevents it from expanding at the rate of other retailing giants. Most of its profit comes from its membership fees as opposed to the merchandise because the low price at which it sells things. This membership fee remained at around $50, but was raised to $55 this year due to the rate of inflation effecting company profitability. This didn't seem to scare off loyal members as the company still posted an expansion.
With its large market cap, Costco still offers some room for growth. The warehouse stores offer food, clothes, furniture, electronics, services, and sometimes even gas! Each and very day the stores are lined up with people eager to cash in on the good deals. This is a good sign for the company in weak economy, but it means that it doesn't have much room for same-store growth in revenue. In order to increase its profits, the company needs to open more stores to expand their reach to a larger range of consumers. The only problem is, the rate at which they are opening stores might not be enough to balance out the rate at which Wall Street expects growth from the company.
Even with the low price at which it sells things, Costco still faces stiff competition from rival companies. Walmart also sells things at fairly low prices targeted at the low and middle income families. Their subsidiary, Sam's Club is often fighting head to head with Costco. Along with BJ's, Wholefoods, and Wegman's, Costco's discounted rates may not be enough to keep up with growth expectations.
Another thing that may attract investors is the opportunity for a takeover from a larger investment company such as Berkshire Hathaway. Warren Buffett has long praised the business structure of Costco and his company owns a large percentage of shares. In addition, his business partner Charles Munger is a Chairman of the board and his friends, Bill and Melinda Gates, also own a large portion of shares. He has strategically place key personnel all around Costco's board. With his history of buying large companies such as his takeover of Heinz for $27 billion added to the $49 billion his company holds in cash, a buyout of Costco is a real possibility.
"Costco Wholesale Corporation engages in the operation of membership warehouses. The company offers branded and private-label products in a range of merchandise categories. Its product categories include candy, snack foods, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, office supplies, cameras, garden and patio, sporting goods, toys, seasonal items, and automotive supplies; dry and institutionally packaged foods; apparel, domestics, jewelry, house wares, media, home furnishings, and small appliances; and meat, bakery, deli, and produce. The company also engages in the operation of gas stations, pharmacies, food courts, optical dispensing centers, one-hour photo centers, hearing aid centers, and print shops and copy centers; and car wash and travel businesses. In addition, it provides business and gold star (individual) membership services. As of November 28, 2012, the company operated 618 warehouses, including 447 in the United States and Puerto Rico, 84 in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, 9 in Taiwan, 8 in South Korea, and 3 in Australia. Further, it is involved in online businesses at costco.com in the United States and costco.ca in Canada. The company was formerly known as Costco Companies, Inc. and changed its name to Costco Wholesale Corporation in August 1999. Costco Wholesale Corporation was founded in 1976 and is based in Issaquah, Washington." -Yahoo! Finance
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