Eleven Percent, By RuleWide moat

Costco Wholesale (COST) — moat facet

The gross margin is not what Costco can get; it is what Costco allows itself, and the discipline is the asset.

Costco's gross margin in fiscal 2025 was 11.12%1. Sam's Club, running the identical format, reported 11.3% for its American segment2. A conventional supermarket runs in the mid-twenties, Walmart at a 24.2% gross profit rate3, a department store far higher. Costco is not at eleven percent because it cannot get more; it is at eleven percent because it decided a long time ago that the extra margin belonged to the member, and because the membership fee makes that affordable.

Gross margin percentage10.57%FY202310.92%FY202411.12%FY202511.04%Q3 FY2026A supermarket runs in the mid-twenties; Walmart around 24%.
The number has sat in the same narrow band for a decade while sales doubled, buying scale grew and private label reached a third of sales. Every one of those would have expanded a normal retailer's margin.

Three mechanisms enforce the decision, and they reinforce each other.

Start with the item count. A Costco warehouse carries fewer than 4,000 stock keeping units4 against forty to fifty thousand at a broadline retailer, and around 9,000 to 10,000 online. Every category gets one or two choices, bought in a quantity that makes a supplier's year, and sold from the pallet it arrived on. That single decision produces the buying leverage, the labour efficiency, the inventory turn and the shrink advantage simultaneously — merchandise is generally stored on racks above the sales floor and displayed on pallets in large quantities, "reducing labor required", and the controlled entrance means inventory losses run well below typical retail.

Then Kirkland Signature. Roughly a third of Costco's sales now carry its own label5, which is the largest private brand in the world by a wide margin and about two and a half times the size of Kroger's entire own-brand business. Costco's own 10-K notes that Kirkland products "generally carry higher margins than national brand products"6, which is true and also secondary. Costco's merchandising chief put the primary use plainly: "I see it as a tremendous negotiating tool." A national brand facing a Kirkland version of its own product on the adjacent pallet has a short conversation about price.

Scale is the third and the least distinctive, because Walmart has more of it. What Costco does with scale is unusual, not the scale itself: it hands the benefit through rather than banking it, which is visible in the fact that the gross margin has barely moved in a decade while sales more than doubled.

The result is not just cheap goods. It is a self-tightening loop. Low margin produces high volume per item; high volume per item produces lower cost per item; lower cost funds lower prices; lower prices bring more members through the door more often. Every retailer knows this loop exists. Almost none will accept the first step for long enough to reach the fourth.

The thing that would break it is a decision, not a competitor. Gross margin percentage rose 20 basis points in fiscal 2025 and fell 21 basis points in the third quarter of fiscal 20267. Small moves in either direction are ordinary. A sustained climb toward thirteen or fourteen percent would mean the company had started keeping the buying power, and would eventually be visible where it matters, in the renewal rate.

Moat trajectory: Holding steady

The gross margin has sat in a narrow band for a decade through a doubling of sales, a private-label expansion and two fee rises. Nothing suggests the discipline is loosening or tightening.

The number that tests this moat
Reported
Gross margin percentage
11.12% in fiscal 2025; 11.03% excluding gasoline effects

Sales roughly doubled over a decade, buying scale grew and private label reached a third of sales, and this number did not move. A sustained climb toward thirteen would mean the buying power was being kept rather than handed on.

Source: Costco Form 10-K, fiscal year ended August 31, 2025 ↗
Aspects of the moat
DIG DEEPER 01
Fewer Than Four Thousand Things
Refusing to stock forty thousand items is not a limitation Costco tolerates — it is the mechanism that produces every other advantage on this page.
DIG DEEPER 02
The Markup Ceiling
Sales doubled, buying power grew, private label reached a third of the business, and the gross margin did not move. That is the ceiling, working.
DIG DEEPER 03
Kirkland Signature
Eighty-six billion dollars of sales from six hundred products, and its main use is not margin but the conversation it lets Costco have with a national…
DIG DEEPER 04
Two Thousand Dollars a Square Foot
Density is not vanity — at half this sales per foot the merchandise business would lose money before the membership fee arrived.
⚠ Threats to the moat
⚠ THREAT 01
Tariffs Land on a Margin With No Room
A retailer at 25% gross margin absorbs a tariff quietly for a year; a retailer at 11.12% has to choose, and there is no third option.
⚠ THREAT 02
A Discipline Is Only as Good as the Next Chief Executive
Two hundred basis points would double the merchandise profit, be invisible for a year, and take about three years to unwind forty.
References
  1. ReportedCostco's gross margin in fiscal 2025 was 11.12%.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 7 MD&A (net sales $269,912M, membership fees $5,323M, gross margin 11.12%, SG&A 9.25%, comparable-sales composition, capital expenditure, dividends and repurchases) — FY2025 · publ. October 8, 2025 · source ↗
  2. ReportedSam's Club, running the identical format, reported 11.3% for its American segment.
    Walmart Form 10-K, fiscal year ended January 31, 2026 - Sam's Club U.S. segment (net sales $93,015M from 601 clubs and 81 million square feet, gross profit $10,556M, operating expenses $10,639M, membership and other income $2,525M, operating income $2,442M) — FY2026 (ended January 31, 2026) · publ. March 13, 2026 · source ↗
  3. ReportedA conventional supermarket runs in the mid-twenties, Walmart at a 24.2% gross profit rate, a department store far higher.
    Walmart Form 10-K, fiscal year ended January 31, 2026 - Sam's Club U.S. segment (net sales $93,015M from 601 clubs and 81 million square feet, gross profit $10,556M, operating expenses $10,639M, membership and other income $2,525M, operating income $2,442M) — FY2026 (ended January 31, 2026) · publ. March 13, 2026 · source ↗
  4. ReportedA Costco warehouse carries fewer than 4,000 stock keeping units against forty to fifty thousand at a broadline retailer, and around 9,000 to 10,000 online.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1 Business (membership counts and renewal rates, warehouse and gas-station counts, under 4,000 SKUs, Executive tier and the 2% reward, human capital and wages, competition, Kirkland Signature) — FY2025 · publ. October 8, 2025 · source ↗
  5. Third-party estimateRoughly a third of Costco's sales now carry its own label, which is the largest private brand in the world by a wide margin and about two and a half times the size of Kroger's entire own-brand business.
    Grocery Dive, 'The Friday Checkout: The king of private brands turns 30' - Kirkland Signature about $86 billion of annual sales, roughly a third of Costco's total, about 600 products globally, against Kroger private brands at $32 billion; Claudine Adamo quoted calling it 'a tremendous negotiating tool' — 2025 · publ. 2025 · source ↗
  6. ReportedCostco's own 10-K notes that Kirkland products "generally carry higher margins than national brand products", which is true and also secondary.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1 Business (membership counts and renewal rates, warehouse and gas-station counts, under 4,000 SKUs, Executive tier and the 2% reward, human capital and wages, competition, Kirkland Signature) — FY2025 · publ. October 8, 2025 · source ↗
  7. ReportedGross margin percentage rose 20 basis points in fiscal 2025 and fell 21 basis points in the third quarter of fiscal 2026.
    Costco Form 10-Q, quarter ended May 10, 2026 - MD&A (comparable sales +10% and +7% excluding fuel and currency, ticket +7% against frequency +2%, membership fees $1,373M, renewal 92.2% and 89.7%, gross margin 11.04%) — Q3 FY2026 and the first 36 weeks · publ. June 3, 2026 · source ↗
Sources
Generated September 23, 2026