Costco 2006 Annual Report Download - page 6

enhancing its value. In product sourcing, development and packaging we continue to be mindful of fair
trade issues and the environment, and we are proud of the contributions that Costco makes in these
important areas, such as our fair-trade coffee offerings and new emphasis on organic products. We
continue to develop mutually-successful relationships with many of the world’s leading corporations,
such as Colgate-Palmolive, ConAgra, Hewlett Packard, Jones of New York, Michelin, Nestle,
Panasonic, Pepsi, Procter & Gamble, Sara Lee, Apple, Starbucks and Sony TV to name just a few.
In fiscal 2006 we sold more than 1.5 million TVs and $300 million of digital cameras. We filled
26.3 million prescriptions, sold two million pairs of eyeglasses, printed more than a billion photos, and
served 63 million hot dog and soda combos (still only $1.50). We sold 500 million dollars-worth of
seafood globally and 28 million rotisserie chickens in the U.S. and Canada alone. Eleven percent of the
organic milk and forty percent of the Tuscan olive oil sold in the United States last year was bought at
Costco. We also sold $805 million of wine, including $390 million in fine wines; and our members
bought more than 96,000 karats of diamonds. No wonder we are now the second-largest general
merchandise retailer in the U.S.
Costco’s Kirkland Signature private label products are recognized in all of our markets for their
incomparable value and quality, and Kirkland Signature is becoming a respected name-brand in its
own right. We currently carry 330 private label items, which account for 15% of our sales. Our plans
are to increase the number of Kirkland Signature items, and we hope to drive Kirkland Signature sales
to 25% of our total over the next several years.
Augmenting the Company’s warehouse operations is our expanding E-commerce business,
costco.com. As expected, our sales for 2006 increased 59% over 2005, and profits were up again. We
project sales will be well over $1 billion in 2007 and hope to reach $5 billion in five years. Costco.com
allows us to offer our customers high-end products that are not available in our warehouses, and
warehouse shoppers can also order online from costco.com at kiosks in many of our buildings, as well
as from their own computers. This year we expanded the online sporting goods and housewares
categories and added a new business products program, as well as the ability to purchase
“build-to-order” diamond rings. In its second year of operation in our important Canadian market,
costco.ca had significant sales growth and was profitable. Like its U.S. counterpart, costco.ca’s top
sellers include electronics and jewelry.
Costco’s ancillary businesses not only continue to bring our members in for more frequent shops, but
they drive sales in every market where we do business and provide significant value and service to our
members. Altogether, ancillary sales increased by more than 25% in 2006, to more than $8.3 billion.
Our pharmacies continue to receive media acclaim as the lowest-priced providers by as much as 80%
to 90% in every market, particularly for generic drugs; and the Company’s Kirkland Signature
over-the-counter medications also provide unparalleled value. We are pleased to note that Costco
pharmacies effectively transitioned our members to the challenging Medicare Part D program. With
429 pharmacies in operation, Costco’s pharmacy sales were up 16% last year. Our first Central Fill
facility debuted in fiscal 2006, bringing new efficiencies to our prescription-fill process in our Northwest
Region. This service is seamless to our members, with prescriptions filled and delivered in 24-hours or
less to their local warehouse.
It was another tumultuous year for the gasoline market, and we all felt the price crunch at the pumps;
but Costco members knew they could find the lowest prices in town at one of our 249 gas stations. The
first Costco Car Wash was added to our Seattle warehouse this past year in a test program that has
proved popular with our Puget Sound members. Ecologically-friendly, the car wash system recovers
75% of the water used, and the service includes rim cleaning, waxing and undercoating, all for $7.99
plus tax.
As Costco’s founders, we have always said that the Company’s employees are its most valuable
assets. We believe our management team is one of the most cohesive and talented in the retail
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