The Cost PositionWide moat

Costco Wholesale (COST) — moat facet

Owning 866 buildings, turning stock thirteen times a year and being paid before it pays is what makes nine percent of sales enough to run on.

Costco runs selling, general and administrative expenses at 9.25% of net sales1. That number is what makes an 11.12% gross margin survivable, and it is built from four things that are mostly invisible from the shop floor.

The four cost advantages, FY2025Buildings owned866 of 914Inventory turns per yearabout 13xPayables vs inventory109%SG&A as % of net sales9.25%Occupancy sunk, stock turned, suppliers funding it, and nine cents of cost per dollar.
None of these is glamorous and together they are what make an 11.12% gross margin survivable. The one that is deteriorating is the last: SG&A rose 11 basis points on the wage increase.

Costco is its own landlord. Of 914 warehouses at the end of fiscal 2025, it owned both the land and the building at 725; of the 189 leased sites, 141 are land-only leases where Costco owns the building2. So the company owns the structure it trades from in 866 cases out of 914, and the land in 725. Occupancy is therefore mostly a sunk cost and a depreciation charge rather than a rent that escalates with the local property market — which matters enormously over decades, and matters most in exactly the expensive coastal markets where Costco's highest-volume warehouses sit.

Then the assortment turns into velocity. Merchandise costs of $239,886 million against average inventories of about $18,382 million imply roughly thirteen inventory turns a year3, or about twenty-eight days of stock. A supermarket runs twelve to fifteen; a general merchandiser five to eight. Fast turns mean less capital tied up, less markdown risk and fresher food, and they are a direct consequence of selling 4,000 items rather than 40,000.

Third, the shape of the supply chain. Costco buys most merchandise directly from producers and routes it through cross-docking depots that "receive large shipments from suppliers and quickly ship these goods to warehouses," a process the company says "creates freight volume and handling efficiencies"4. Distribution and logistics facilities total about 32.2 million square feet against 134.7 million of selling floor — a ratio far below what a conventional retailer needs, because goods move through rather than sit.

Last is the working capital, which Costco states most plainly: "We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts." At the end of fiscal 2025 accounts payable of $19,783 million exceeded merchandise inventories of $18,116 million5. The suppliers finance the entire stock and about $1.7 billion besides.

The item this facet does not economise on is labour, deliberately. Costco raised its American and Canadian starting wage to at least $20.00 an hour in March 2025 and the average American hourly rate to about $32.006, with a retention rate near 94% for employees past their first year. That is not charity and it is not inefficiency; a warehouse with 4,000 items and pallet displays needs fewer people, so Costco can pay each of them far more and still run SG&A at nine percent.

That SG&A ratio is what tests the whole facet. It rose 11 basis points in fiscal 2025, which is the visible cost of the wage increase. If it climbs steadily past ten percent of net sales without a corresponding gross margin gain, the cost position is eroding and there is no membership fee large enough to hide it.

Moat trajectory: Holding steady

Ownership, turns and supplier float are all intact and none is improving. SG&A rose 11 basis points in fiscal 2025 on the wage increase, which is the cost of keeping the labour half of it.

The number that tests this moat
Reported
SG&A as a percentage of net sales
9.25% in fiscal 2025, up 11 basis points

This is what makes an 11.12% gross margin survivable. A steady climb past ten percent without a matching gross margin gain would mean the cost position was eroding, and no membership fee is large enough to hide that.

Source: Costco Form 10-K, fiscal year ended August 31, 2025 ↗
Aspects of the moat
DIG DEEPER 01
Owning the Ground
A leased retailer's success raises its own rent; Costco's occupancy cost was fixed decades ago at prices that no longer exist.
DIG DEEPER 02
Thirty-Two Dollars an Hour
Paying double the going rate is affordable precisely because the format needs so few people, and the 94% retention is what it buys.
DIG DEEPER 03
The Depots
Goods move through rather than sit, which is why 32 million square feet of logistics supports 135 million of selling floor.
DIG DEEPER 04
Paid Before It Pays
Accounts payable exceed the entire inventory, so the suppliers finance the stock and about three billion dollars besides.
⚠ Threats to the moat
⚠ THREAT 01
The Wage Bill Is the One Cost Costco Chose to Raise
The largest expense after goods, committed to publicly, rising with the market and unable to fall with it.
⚠ THREAT 02
Buying the Land Was Cheap Once
The owned real estate was accumulated at prices that no longer exist, in catchments municipalities have spent two decades making harder to build in.
References
  1. ReportedCostco runs selling, general and administrative expenses at 9.25% of net sales.
    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. ReportedOf 914 warehouses at the end of fiscal 2025, it owned both the land and the building at 725; of the 189 leased sites, 141 are land-only leases where Costco owns the building.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 2 Properties (725 warehouses with owned land and building, 141 land-only leases, 134.7 million square feet of selling floor and 32.2 million of distribution) — FY2025 · publ. October 8, 2025 · source ↗
  3. Moat Explorer calcMerchandise costs of $239,886 million against average inventories of about $18,382 million imply roughly thirteen inventory turns a year, or about twenty-eight days of stock.
    Moat Explorer calculation: FY2025 merchandise costs of $239,886M over average merchandise inventories of about $18,382M gives roughly 13 inventory turns (about 28 days); accounts payable of $22,363M over inventories of $19,418M gives 115% at Q3 FY2026 — FY2025 and Q3 FY2026 · publ. September 2026 · source ↗
  4. ReportedCostco buys most merchandise directly from producers and routes it through cross-docking depots that "receive large shipments from suppliers and quickly ship these goods to warehouses," a process the company says "creates freight volume...
    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. ReportedLast is the working capital, which Costco states most plainly: "We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts." At the end of fiscal 2025 accounts payable of $19,783...
    Costco Form 10-K, fiscal year ended August 31, 2025 - consolidated financial statements and notes (income statement, balance sheet, Note 11 segment reporting, disaggregated revenue by merchandise category, legal proceedings) — FY2025 · publ. October 8, 2025 · source ↗
  6. ReportedCostco raised its American and Canadian starting wage to at least $20.00 an hour in March 2025 and the average American hourly rate to about $32.00, with a retention rate near 94% for employees past their first year.
    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 ↗
Sources
Generated September 23, 2026