Inside Costco: Secrets of America's Favorite Stores

The recipe for Costco's success includes store structure, selection and salmon.

March 26, 2010, 2:07 PM

March 29, 2010— -- Ever wish you could belong to the same private club as Pamela Anderson, Jimmy Kimmel and Martha Stewart? If you're one of the 55 million members of Costco, you already do.

From celebrities the average American family, it seems as if everyone loves bulk, brand names and bargains.

Costco's membership is largely made up of middle- and upper-middle class families and small business owners who pay $50 to $100 for annual memberships. So far this year, Costco has reported $386 million in revenues from membership fees alone.

Loyal customers are willing to pay those fees because of the heavy discounts they enjoy once they walk through the door -- Costco never charges more than 14 percent above cost for any item.

The discounter's impressive numbers go beyond their low price tags. Costco is the number one wholesale buying club in the country and the ninth largest retailer in the world, and last year their annual revenue was more than $70 billion, topping both Target and Home Depot.

Jeffrey Long, Costco's senior vice president and general manager for the northeast region, attributes their growth during the recession to "the value."

"When times are tough," he said, "people really pay attention to what they're getting."

But Costco manages to turn big profits in the best and the worst of times. So how do they do it? "GMA" got a breakdown of the secrets to their sustained success.

The first secret is right there in the store's name. Costco is able to maintain lower prices than other grocery stores by keeping their costs down.

"We keep our facilities very bare bones," Long said. "You look around you see a concrete floor, you see a regular girder ceiling, you don't see signs on every aisle telling everybody where the products are."

That leads to secret number two: let customers get lost.

"We kind of coined the term 'treasure hunt' years and years ago," Long said, "This is a treasure hunt, it's what it is, you know. We want people to come in, but we want them to spend some time wandering around our facility."

Costco Succeeds With Wine, Other High-End Products

Costco also stocks a much smaller selection of products than its competitors.

"We keep our selection down so we can get the most out of it and offer the best value, the best price," Long said.

The store only offers about 4,000 unique products for sale at any one time. Compare that to a typical supermarket, which carries about 40,000 products, or a Wal-Mart store with about 125,000 products.

Costco's buyers hand-select each item, like the more than 200 varieties of wine sold at many Costco stores, making them the largest wine retailer in the world.

The company had to convince some of their top-notch suppliers -- especially winemakers -- that their members would spend money on high-end products, but they now sell everything from crystal champagne to clothing from Michael Kors.

Then there are the nuts. Costco snaps up 50 percent of the world's supply of the most popular cashew, selling $300,000 worth of them every week.

The only product that sells more is that eternal necessity: toilet paper.

Also climbing the list of top-sellers is salmon.

"I think you have to look at things like our salmon, our signature salmon," Long said. "It's always been a great item and it's better than it ever has been."

From house brands to high end, Costco has something for everybody. And that has been the biggest secret to their success, and the key to their future.

Web Extra: More Costco Secrets

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