The Markup CeilingWide moat

Costco is widely reported to hold itself to a hard ceiling on markup — in the region of fourteen percent on branded goods and fifteen on Kirkland Signature — a rule handed down from the company's founders and repeated by its executives for forty years. No filing states it, so treat the specific numbers as reported rather than reported-to-the-SEC.

What the filings do show is the consequence, and the consequence is more convincing than the rule. Costco's gross margin percentage was 11.12% in fiscal 2025, 10.92% in 2024, 10.57% in 2023¹. Go back a decade and the figure sits in the same narrow band. Over that period net sales roughly doubled, the company gained enormous additional buying scale, added a huge private-label business that carries higher margins, and raised its membership fee twice. Every one of those developments would have expanded the margin at a normal retailer. At Costco the margin stayed put, which means the gains were handed over.

The cleanest way to see the ceiling working is to compare it with the one competitor running the same format. Sam's Club's American gross profit rate was 11.3% in fiscal 2026² — essentially the same. Now compare it with the parent: Walmart consolidated operates far above that. The warehouse-club format enforces the low margin, and Costco's distinction is not that it charges less than Sam's Club but that it converts the same margin rate into more than twice the sales volume per club.

The falsifier is straightforward and Costco supplies it every quarter. Gross margin excluding gasoline price effects was 11.03% in fiscal 2025 and 11.26% in the third quarter of fiscal 2026³. If that series walks upward for several years, the ceiling is being raised.