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3 Reasons to Buy Costco Wholesale Corporation

Source: Costco

Costco (NASDAQ:COST) has delivered impressive gains for investors over the long-term. Shares of the discount retailer are up by almost 240% in the last decade. Even better, there are solid reasons to believe that Costco still offers attractive upside potential in the years ahead.

A top-quality player
Costco is the pioneer in the warehouse retail business model. The company makes most of its profits from membership fees, not margins on its products. This allows Costco to sell its goods for razor-thin profit margins, sometimes even taking a loss on a particular item. Needless to say, cost leadership is a huge source of competitive advantage for discount retailers.

Costco is remarkably disciplined when it comes to cost savings, particularly in areas such as marketing and advertising, where many competitors typically spend considerable resources. The company also applies smart supply chain strategies, such as purchasing merchandise directly from manufacturers, and storing inventory on sales floors as opposed to using a central warehouse.

On the other hand, Costco is well known for paying higher salaries than the competition, and it offers superior benefits and opportunities for professional development. This is quite unique in an industry in which most players are typically criticized for paying insufficiently low wages, and it provides Costco with a considerable edge in this area.

Attracting and retaining the best human resources in the business is a key source of differentiation for Costco, because it means superior customer service and material cost savings in areas such as employee turnover. A more motivated workforce is also a more efficient and productive one, and this can have a huge positive impact on overall business performance over the long-term.

Customers love Costco
Customers seem more than pleased with Costco's smart business strategy and customer-centric focus. The company has ranked in the leading position among its industry in the American Customer Satisfaction Index each year for more than a decade. Based on data for the 2014 ranking, the company has a satisfaction score of 84 versus an industry average of 79.

The company is building a big and loyal customer base -- Costco ended the last quarter...


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