Initially, most of Costco’s profits accrued from markups, but that has gradually shifted. Guess what percentage of Costco’s total 2016 profits of $2.35 billion owed to the fees it charged its members. Fifty percent? Eighty percent? One hundred percent? Try 112 percent.15 Costco lost money in its traditional supermarket retail business model and more than made up for it with membership fees. Costco stands as an incredible example of business model innovation in the groceries retail sector.
