What changed in this filing

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Item 1. Business

2021-10-06 compared with 2020-10-07 · 65 added, 31 removed, 107 unchanged (47% of the section changed)

2 unchanged sentences

We are principally engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, United Kingdom (U.K.), Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and through a majority-owned subsidiary in Taiwan.

Costco operated 795, 782, and 762 warehouses worldwide at August 30, 2020, September 1, 2019, and September 2, 2018, respectively.

Costco operated 815, 795, and 782 warehouses worldwide at August 29, 2021, August 30, 2020, and September 1, 2019, respectively.

The Company operates e-commerce websites in the U.S., Canada, Mexico, U.K., Korea, Taiwan, Japan, and Australia.

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The material seasonal impact in our operations is increased net sales and earnings during the winter holiday season.

References to 2020, 2019, and 2018 relate to the 52-week fiscal years ended August 30, 2020, September 1, 2019, and September 2, 2018, respectively.

We operate membership warehouses based on the concept that offering our members low prices on a limited selection of nationally-branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover.

References to 2021, 2020, and 2019 relate to the 52-week fiscal years ended August 29, 2021, August 30, 2020, and September 1, 2019, respectively.

We operate membership warehouses and e-commerce websites based on the concept that offering our members low prices on a limited selection of nationally-branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover.

When combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, these volumes and turnover enable us to operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers.

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This process creates freight volume and handling efficiencies, lowering costs associated with traditional multiple-step distribution channels.

commerce operations we ship merchandise through our depots, our logistics operations for big and bulky items, as well as through drop-ship and other delivery arrangements with our suppliers.

Our average warehouse space is approximately 146,000 square feet, with newer units being slightly larger.

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We seek to limit most items to fast-selling models, sizes, and colors.

We carry an average of approximately 3,700 active stock keeping units (SKUs) per warehouse in our core warehouse business, significantly less than other broadline retailers.

We carry less than 4,000 active stock keeping units (SKUs) per warehouse in our core warehouse business, significantly less than other broadline retailers.

We average anywhere from 9,000 to 11,000 SKUs online, some of which are also available in our warehouses.

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Additional third-party warranty coverage is sold on certain electronic items.

We offer merchandise in the following categories:

• Food and Sundries (including dry foods, packaged foods, groceries, snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies)

• Hardlines (including major appliances, electronics, health and beauty aids, hardware, and garden and patio)

• Fresh Foods (including meat, produce, deli, and bakery)

• Softlines (including apparel and small appliances)

• Ancillary (including gasoline and pharmacy businesses)

Ancillary businesses within or next to our warehouses provide expanded products and services, encouraging members to shop more frequently.

These businesses include gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers.

The number of warehouses with gas stations varies significantly by country, and we do not currently operate our gasoline business in Korea or China.

We offer merchandise and services in the following categories:

Core Merchandise Categories (or core business):

• Foods and Sundries (including sundries, dry grocery, candy, cooler, freezer, deli, liquor, and tobacco)

• Non-Foods (previously Hardlines and Softlines;

including major appliances, electronics, health and beauty aids, hardware, garden and patio, sporting goods, tires, toys and seasonal, office supplies, automotive care, postage, tickets, apparel, small appliances, furniture, domestics, housewares, special order kiosk, and jewelry)

• Fresh Foods (including meat, produce, service deli, and bakery)

Warehouse Ancillary (includes gasoline, pharmacy, optical, food court, hearing aids, and tire installation) and Other Businesses (includes e-commerce, business centers, travel, and other)

Warehouse ancillary businesses operate primarily within or next to our warehouses, encouraging members to shop more frequently.

The number of warehouses with gas stations varies significantly by country, and we have no gasoline business in Korea or China.

We operated 636 gas stations at the end of 2021.

Net sales for our gasoline business represented approximately 9% of total net sales in 2021.

Our e-commerce operations allow us to connect with our members online and provide additional products and services, many not found in our warehouses.

Our other businesses sell products and services that complement our warehouse operations (core and warehouse ancillary businesses).

Our e-commerce operations give members convenience and a broader selection of goods and services.

Net sales for e-commerce represented approximately 7% of total net sales in 2021.

This figure does not consider other services we offer online in certain countries such as business delivery, travel, same-day grocery, and various other services.

We have direct buying relationships with many producers of national brand-name merchandise.

Our business centers carry items tailored specifically for food services, convenience stores and offices, and offer walk-in shopping and deliveries.

Business centers are included in our total warehouse count.

Costco Travel offers vacation

packages, hotels, cruises, and other travel products exclusively for Costco members (offered in the U.S., Canada, and the U.K.).

We have direct buying relationships with many producers of brand-name merchandise.

We do not obtain a significant portion of merchandise from any one supplier.

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Certain financial information for our segments and geographic areas is included in Note 12 to the consolidated financial statements included in Item 8 of this Report.

Our members may utilize their memberships at our warehouses worldwide.

Our members may utilize their memberships at all of our warehouses and websites.

Gold Star memberships are available to individuals;

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Our member renewal rate was 91% in the U.S.

and Canada and 88% on a worldwide basis at the end of 2020.

and Canada and 89% worldwide at the end of 2021.

The majority of members renew within six months following their renewal date.

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and Canada, which resulted in the addition to the count of approximately 2.0 million total cardholders for 2020, of which 1.3 million were paid members.

The change did not impact 2019 or 2018.

The change did not impact 2019.

Membership fee income and the renewal rate calculations were not affected.

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Executive members earn a 2% reward on qualified purchases (generally up to a maximum reward of $1,000 per year), which can be redeemed only at Costco warehouses.

This program also offers (except in Mexico, Japan, and Korea), access to additional savings and benefits on various business and consumer services, such as auto and home insurance, the Costco auto purchase program, and check printing.

This program also offers (except in Mexico and Korea), access to additional savings and benefits on various business and consumer services, such as auto and home insurance, the Costco auto purchase program, and check printing.

These services are generally provided by third parties and vary by state and country.

Executive members, who totaled 22.6 million and represented 39% of paid members at the end of 2020, generally shop more frequently and spend more than other members.

Our employee count was as follows:

Executive members totaled 25.6 million and represented 55% of paid members (excluding affiliates) in the U.S.

and Canada and 17% of paid members (excluding affiliates) in our Other International operations at the end of 2021.

They generally shop more frequently and spend more than other members.

Human Capital

Our Code of Ethics requires that we “Take Care of Our Employees,” which is fundamental to the obligation to “Take Care of Our Members.” We must also carefully control our selling, general and administrative (SG&A) expenses, so that we can sell high quality goods and services at low prices.

Compensation and benefits for employees is our largest expense after the cost of merchandise and is carefully monitored.

At the end of 2021, we employed 288,000 employees worldwide.

The large majority (approximately 95%) is employed in our membership warehouses and distribution channels and approximately 17,000 employees are represented by unions.

We also utilize seasonal employees during peak periods.

The total number of employees by segment is:

Number of Employees

2021 2020 2019

Full-time employees 156,000 149,000 143,000

Part-time employees 117,000 105,000 102,000

United States 192,000 181,000 167,000

Canada 47,000 46,000 42,000

Other International 49,000 46,000 45,000

Total employees 288,000 273,000 254,000

Approximately 17,100 employees are union employees.

We consider our employee relations to be very good.

We believe that our warehouses are among the most productive in the retail industry, owing in substantial part to the commitment and efficiency of our employees.

We seek to provide them not merely with employment but careers.

Many attributes of our business contribute to the objective;

the more significant include:

competitive compensation and benefits for those working in our membership warehouses and distributions channels;

a commitment to promoting from within;

and maintaining a ratio of at least 50% of our employee base being full-time employees.

These attributes contribute to what we consider, especially for the industry, a high retention rate.

In 2021, in the U.S.

that rate was above 90% for employees who have been with us for at least one year.

The commitment to “Take Care of Our Employees” is also the foundation of our approach to diversity, equity and inclusion and creating an inclusive and respectful workplace.

In 2021, we added training and communication for managers on topics of race, bias and equity, and greater visibility of our employee demographics.

Embracing differences is important to the growth of our Company.

It leads to more opportunities, innovation, and employee satisfaction and connects us to the communities where we do business.

Costco is firmly committed to helping protect the health and safety of our members and employees and to serving our communities.

In response to the COVID-19 pandemic and its associated challenges, we began providing premium pay to the majority of our hourly employees in March 2020 and continued for a full year through February 2021, at which time a portion of the premium was built permanently into our hourly wage scales in the U.S.

In fall 2020, we also began offering employees additional paid time off to attend to child care and schooling needs through the 2021 school year.

As the global effect of coronavirus (COVID-19) continues to evolve, we are closely monitoring the changing situation and complying with public health guidance.

For more detailed information regarding our programs and initiatives, see “Employees” within our Sustainability Commitment (located on our website).

This report and other information on our website are not incorporated by reference into and do not form any part of this Annual Report.

Our industry is highly competitive, based on factors such as price, merchandise quality and selection, location, convenience, distribution strategy, and customer service.

We compete on a worldwide basis with global, national, and regional wholesalers and retailers, including supermarkets, supercenters, internet retailers, gasoline stations, hard discounters, department and specialty stores, and operators selling a single category or narrow range of merchandise.

Walmart, Target, Kroger, and Amazon are among our significant general merchandise retail competitors.

We also compete with other warehouse clubs (primarily Walmart’s Sam’s Club and BJ’s Wholesale Club), and many of the major metropolitan areas in the U.S.

Walmart, Target, Kroger, and Amazon are among our significant general merchandise retail competitors in the U.S.

We also compete with other warehouse clubs including Walmart’s Sam’s Club and BJ’s Wholesale Club, and many of the major metropolitan areas in the U.S.

and certain of our Other International locations have multiple clubs.

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The executive officers of Costco, their position, and ages are listed below.

All executive officers have over 25 years of service with the Company.

All have over 25 years of service with the Company.

Name Position Executive

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Miller was Senior Vice President, Western Canada Region, from 2001 to January 2018.

Moulton Executive Vice President, Chief Information Officer.

Moulton was Executive Vice President, Real Estate Development, from 2001 until March 2010.

Murphy Executive Vice President, Chief Operating Officer, International.

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Rose Executive Vice President, Ancillary Businesses, Manufacturing, and Business Centers.

Rose was Senior Vice President, Merchandising, Food and Sundries and Private Label, from 1995 to December 2012.

Rose was Senior Vice President, Merchandising, Foods and Sundries and Private Label, from 1995 to December 2012.

Yoram Rubanenko Executive Vice President, Northeast and Southeast Regions.

Rubanenko was Senior Vice President and General Manager, Southeast Region, from 2013 to September 2021, and Vice President, Regional Operations Manager for the Northeast Region, from 1998 to 2013.

Vachris Executive Vice President, Chief Operating Officer, Merchandising.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business