Costco

The membership warehouse club business has high volume and low profit margins. Costco's five hundred plus warehouses have a combined annual revenue of over $60 billion, but only a little over $1 billion in profits. Now $1 billion is nothing to sneeze at, but 132,000 employees could be expected to create many multiples of that in almost any other business.

For a company founded in 1983, the business has demonstrated a history of phenomenal growth. Yet after an industry shakeout that bolstered Costco at the expense of its primary competitor Sam's Club, the current environment doesn't appear to offer Costco another reprieve.

Costco's business model is built on fewer warehouses operated by much more highly paid employees moving truly prodigious amounts of product in order to beat back Sam's Club and its major trump - Wal-Mart's accumulated relationships and business acumen. Costco is much more labor friendly than Wal-Mart and that actually translates into a significant competitive advantage in Blue America. Unfortunately, Wal-Mart's size and unprecedented competitive drive ensure razor-thin margins.

Costco has created tremendous wealth in the relatively short time it has been in business, and no particular trend aside from a wholesale economic downturn is likely to drag the company under. Unfortunately, Wal-Mart is better positioned to use its greater size to extract greater profits and squeeze its smaller competitors. Costco is a fine business on its own, but stock symbol COST is only worth holding on to. Any new capital should be invested in either industry leader Wal-Mart or an industry with greater profit margins.