Bufetico
Tony Barzar has been ringing up Costco members in Tucson for most of the past forty years. He’s sixty. The Wall Street Journal followed him through a shift: he was working the self-checkout area, six registers, and the first shoppers were ready just after nine.
He started in 1986, pushing carts in a Tucson parking lot for $5.85 an hour. Today he makes $32.90, the top of Costco’s hourly scale. His wife used to work in the bakery, and when she was diagnosed with brain cancer, the company’s health plan covered her three brain surgeries. The Journal reports he has more than a million dollars in his retirement account. “This is my calling,” he told them.
Costco’s executives told the Journal that workers like Barzar are the company’s secret weapon: they’re reliable, they move a line, and they teach the new hires how the place works.
The company’s own annual report puts a figure on how long people stay. In the United States and Canada, about 94 percent of the employees who had been there at least a year were still there at the end of fiscal 2025. It also says pay and benefits are the company’s biggest expense after the goods themselves. And after paying all of that, Costco keeps about three cents of every dollar it sells.
In the fiscal year that ended in August 2025, that came to a net margin of 2.9 percent. Seven years earlier, in fiscal 2018, it was 2.2 percent. Three cents on the dollar sounds like a business one bad year away from keeping nothing. It’s paid Barzar through all of those years.
The margin only tells you what each dollar of sales leaves behind. It says nothing about how many dollars had to sit inside the company to make those sales happen. For a retailer, that second question is the big one. At Costco the answer is on the shelves Barzar scans all day.
Where the money isn’t
At the end of that same fiscal year, the goods in Costco’s warehouses were worth $18,116 million, and Costco owed the suppliers who delivered them $19,783 million. The report says so itself: Costco often sells its goods before it has to pay for them. By the time a supplier’s bill falls due, Barzar has already rung the goods up and the members have already paid. The suppliers are financing the shelves. The members chip in too: Costco was holding more than $2.8 billion in membership fees for months it hadn’t delivered yet.
That’s why the margin can be thin and the return isn’t. Return on capital is one question: for every dollar tied up in the business, how much profit does it make in a year? There are several ways to define “tied up”; I’ll use the plainest one so you can check it. The shareholders’ own money sitting in the company, plus the long-term borrowing, minus the cash sitting idle, comes to $20,716 million of capital in the business. The stores earned about $7,777 million after tax. Divide, and $7,777 million on $20,716 million is about 37.5 percent: for every dollar tied up, thirty-seven cents a year. The same arithmetic on the fiscal 2018 report gives about 24. So the margin went from 2.2 to 2.9 percent, which looks like the same business doing a little better, and the return on capital went from 24 to 37, which means something changed.
Let’s say you’ve got two grocers that both keep three cents on the dollar. One uses the same dollar of its own money many times a year, because its suppliers wait and its customers pay up front. The other has to pay for its goods with its own cash and gets two uses out of that dollar in a year. People quote the three cents. But keeping a cashier at the top of the scale for forty years depends on what the grocer earns on the money it has to keep inside.
Where this breaks
That’s the textbook version of the arithmetic, and it isn’t the only one. I took the cash out of the base, because cash in a bank account isn’t working. But you can argue a good part of that cash is there because Costco sold goods it hadn’t paid for yet, so it belongs in. Leave the $14,161 million of cash in and the base is $34,877 million, and the same $7,777 million on it comes to about 22 percent. Add the lease obligations on rented land and buildings, and the return shrinks again. And this return depends on the suppliers going on waiting to be paid. Right now they do, and my guess is that being on Costco’s shelves is worth the terms. If Costco had to pay for the goods itself, the $18,116 million of inventory would sit on top of the $20,716 million base, $38,832 million in all, and the same profit on that comes to about 20 percent. The margin wouldn’t move. Some of that 37 percent is the suppliers’ terms. I’d want to know how much. Builders FirstSource showed what that looks like from the other side: cash that comes from not yet paying suppliers tends to go back out when the bills come due.
Two more things. The return on capital tells you what kind of business you’ve got. What you make owning a piece of it depends on what you pay for that piece, and I don’t get into the price here. And I’ve only shown one year, which is enough to see how it works. A company can post a great return the year it happens to hold little inventory and an ordinary one the year after. You have to look at several years to know which is the business and which is the year.
Barzar’s registers
In fiscal 2025 the suppliers were carrying every dollar on the shelves Barzar scans, and $1,667 million on top of it. That 2018 report shows $11,040 million of goods and $11,237 million owed to suppliers, a gap of $197 million. From $197 million to $1,667 million is about $1.5 billion wider, and the base is about $20.7 billion, so the gap is a slice of it. Costco’s report has a name for that gap, “net investment in merchandise inventories”, and it lists “payment terms with suppliers” among the things that move it.