What changed in this filing

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Item 1. Business

2023-10-11 compared with 2022-10-05 · 42 added, 51 removed, 137 unchanged (40% of the section changed)

1 unchanged sentence

Costco Wholesale Corporation and its subsidiaries (Costco or the Company) began operations in 1983, in Seattle, Washington.

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

Costco operated 838, 815, and 795 warehouses worldwide at August 28, 2022, August 29, 2021, and August 30, 2020, respectively.

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

We are principally engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, Mexico, Japan, the United Kingdom (U.K.), Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden.

Costco operated 861, 838, and 815 warehouses worldwide at September 3, 2023, August 28, 2022, and August 29, 2021.

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

Our common stock trades on the NASDAQ Global Select Market, under the symbol “COST.”

2 unchanged sentences

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

References to 2022, 2021, and 2020 relate to the 52-week fiscal years ended August 28, 2022, August 29, 2021, and August 30, 2020, respectively.

References to 2023 relate to the 53-week fiscal year ended September 3, 2023.

References to 2022 and 2021 relate to the 52-week fiscal years ended August 28, 2022, and August 29, 2021.

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.

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We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts.

We buy most of our merchandise directly from manufacturers and route it to cross-docking consolidation points (depots) or directly to our warehouses.

Our depots receive large shipments from manufacturers and quickly ship these goods to warehouses.

We buy most of our merchandise directly from suppliers and route it to cross-docking consolidation points (depots) or directly to our warehouses.

Our depots receive large shipments from suppliers and quickly ship these goods to warehouses.

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

For our e-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 e-commerce operations ship

merchandise through our depots and logistics operations, as well as through drop-ship and other delivery arrangements with our suppliers.

Our average warehouse space is approximately 147,000 square feet, with newer units being slightly larger.

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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.

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

We operated 692 gas stations at the end of 2023.

Net sales for our gasoline business increased to approximately 14% of total net sales in 2022.

Our gasoline business represented approximately 13% of total net sales in 2023.

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

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

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

Our business centers carry items

1 E-commerce and business centers are allocated to the appropriate merchandise categories in the Net Sales portion of Item 7.

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.).

Costco Travel offers vacation packages, car rentals, cruises, hotels, 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.

The COVID-19 pandemic created unprecedented supply constraints, including disruptions and delays that have impacted and could continue to impact the flow and availability of certain products.

When sources of supply become unavailable, we seek alternatives.

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Our membership counts include active memberships as well as memberships that have not renewed within the 12 months prior to the reporting date.

At the end of 2020, we standardized our membership count methodology globally to be consistent with the U.S.

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.

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

Our membership was made up of the following (in thousands):

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Paid cardholders (except affiliates) are eligible to upgrade to an Executive membership in the U.S., for an additional annual fee of $60.

Executive memberships are also available in Canada, Mexico, the U.K., Japan, Korea, and Taiwan, for which the additional fee varies.

Executive memberships are also available in Canada, Mexico, the U.K., Japan, Korea, Taiwan, and Australia, for which the additional fee varies.

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

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 totaled 29.1 million and represented 57% of paid members (excluding affiliates) in the U.S.

and Canada, and 22% of paid members (excluding affiliates) in our Other International operations.

This program offers services that vary by state and country and provide 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.

Executive members totaled 32.3 million and represented 45.4% of paid members.

The sales penetration of Executive members represented approximately 72.8% of worldwide net sales in 2023.

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At the end of 2023, we employed 316,000 employees worldwide.

The large majority (approximately 95%) is employed in our membership warehouses and distribution channels, and less than 10% are represented by unions.

We also utilize seasonal employees during peak periods.

The total number of employees by segment is:

Number of Employees

Approximately 95% are employed in our membership warehouses and distribution channels, and approximately 5% are represented by unions.

We also utilize seasonal employees.

The total number of employees by segment was:

2023 2022 2021

4 unchanged sentences

Growth and Engagement

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

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

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a commitment to promoting from within;

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

and a target 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.

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Diversity, Equity and Inclusion

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 2022, we appointed a new Chief Diversity and Inclusion Officer.

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.

In October 2021, we provided an increase of a minimum of $0.50 per hour for U.S.

and Canada wage scales.

In March 2022, we provided certain compensation increases, including a $0.75 per hour increase to the top of the U.S.

wage scales, increased the starting wage to $17.50, and granted our employees one additional day of paid time off.

In July 2022, we provided an additional increase to the top of the U.S.

wage scales of $0.50 per hour.

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

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

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

We strive for an environment where all employees feel that they belong, are accepted, included, respected and supported because of who they are.

We demonstrate leadership commitment to equity through consistent communication, employee development and education, support of diversity and inclusion initiatives within the organization, community involvement, and supplier diversity.

Costco continues its efforts to develop future leaders, including through the supervisor in training programs.

In 2023, over 7,800 hourly employees completed the 6-week course.

Costco strives to provide our employees with competitive wages and excellent benefits.

In March 2023, we increased the top of the wage scales by 85 cents per hour in the U.S, Canada and Puerto Rico.

In September of 2023, we increased the starting wage to at least $18.50 for all entry-level positions in the U.S.

We have also expanded our benefits in the U.S.

to include additional mental health support for children and adults at little to no cost to our employees.

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

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.

The Sustainability Commitment 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.

We compete on a worldwide basis with global, national, and regional wholesalers and retailers, including supermarkets, supercenters, online

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 in the U.S.

We also compete with other warehouse clubs, including Walmart’s Sam’s Club and BJ’s Wholesale Club.

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

Many of the major metropolitan areas in the U.S.

33 unchanged sentences

Klauer was Senior Vice President, Non-Foods and E-commerce Merchandise, from 2013 to January 2018.

Callans Executive Vice President, Administration.

Callans was Senior Vice President, Human Resources and Risk Management, from 2013 to December 2018.

Miller Senior Executive Vice President, U.S.

Miller was Executive Vice President, Chief Operating Officer, Southern Division and Mexico, from January 2018 to May 2022.

Miller was Executive Vice President, Chief Operating Officer, Southwest Division and Mexico, from January 2018 to May 2022.

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

Murphy Executive Vice President, Chief Operating Officer, International Division.

Murphy was Senior Vice President, International, from 2004 to October 2010.

Murphy is retiring from the Company at the end of calendar year 2022.

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

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

Rose is retiring from the Company effective November, 2022.

Callans Executive Vice President, Administration.

Callans was Senior Vice President, Human Resources and Risk Management, from 2013 to December 2018.

Rubanenko Executive Vice President, Chief Operating Officer, Eastern Division.

5 unchanged sentences

Caton Frates Executive Vice President, Chief Operating Officer, Southwest Division.

Frates was Senior Vice President, Los Angeles Division, from 2015 to May 2022.

Frates was Senior Vice President, Los Angeles Region, from 2015 to May 2022.

Pierre Riel Executive Vice President, Chief Operating Officer, International Division.

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