Is this the end of Costco’s $1.50 hotdog combo?

Welcome to the Level Ups. Modern business news in plain-Jane English.

Today, we cover:

• Costco announced a new CEO (is this the end of the $1.50 hot dog?)

• The incredible business of Costco.

• Apparel sales alone are a multi-million dollar business.

• Wrapping up.

Let’s get into it.

Estimated reading time.

Costco’s New CEO.

Ron Vachris is stepping into the CEO role at Costco, replacing Craig Jelinek. Vachris was previously the President and COO.

It’s an incredible story of a man who went from forklift driver to CEO over a 40-year career at the same company. They don’t do it like this anymore, frankly. Still, an incredible story.

Jelinek’s appointment created one of the most amazing headlines the world has ever seen (and everyone’s wondering if it will happen again):

Chances are the hot dog combo won’t change. Vachris, the new CEO, has been with the company long enough to know not to mess with this.

This announcement is also a timely reminder of how amazing Costco is.

Costco: boring and awesome.

In 2023, annual revenue was $242.3B (with a B), and it’s been growing steadily.

But it’s not just about the money.

• Costco is known for having slim margins on sales and passing amazing prices to the customer.

• Their executives are appointed from within, including CEOs, as mentioned.

• Less than 10% of their sales are online. A massive opportunity here for Vachris.

While Fendi is making coffee carrier bags for attention, Costco is building one of the healthiest businesses in the world today.

It shows that the old-school, great-prices, excellent-selection warehouse retail store is alive and (in Costco’s case) doing well. I doubt other companies could compete if they tried, but that’s the point.

It works because the warehouse retail giant has everything from wedding rings to $19 Kirkland Signature sweatpants.

Let’s take their apparel, for example.

Costco makes more money in clothing sales than Lululemon.

In 2019, Costco made $7B in revenue selling clothes.

In 2019, Lululemon made $3.5B across its entire company.

Now, to be fair, Lululemon has seen major growth. They’ve more than doubled their business since then. In 2022, Lulu earned $8.1B in revenue.

While I couldn’t find the exact number, I estimate that Costco earned ~$9.1B in 2022 just from clothing sales (still more than Lululemon).

I took the $7B number from 2019 and increased it by the same growth percentage Costco saw overall (32%). This estimate assumes clothing sales grew exactly the same amount.

Here’s the best part:

• Costco Kirkland Signature sweatpants: $19.

• Lululemon sweatpants: $118.

• Costco membership: Priceless $60.

Is it a fair comparison? Lululemon sells a “brand” and an "image“ associated with wearing their clothes, so it’s not quite the same.

Right?

Kind of. I understand the idea behind this sentiment. But this only applies if you see sweatpants as a status symbol. Better status symbols are out there, but that’s beside the point.

Wrapping up:

I always believed the idea of “starting the warehouse” and becoming a CEO was a thing of the past.

While this is just one case of it happening, I think it’s enough to say I was wrong.

For certain, most companies don’t promote from within, at least not like this. It’s a core part of the Costco strategy and something I’d love to see more often (as difficult as it is).

Costco had always been the neighbourhood warehouse store. I’d never considered it such a highly successful business where they sell more in clothing than Lululemon.

Now, they’re one of the my favourite brands.

Thanks for reading!