Costco's success hinges on its membership model, where customers pay annual fees for access to discounted bulk goods. This model fuels impressive revenue, exemplified by $4.2 billion in membership fees in 2022, contributing to over $222 billion in net sales. Costco leverages its private label, Kirkland Signature, to enhance profit margins, offering everything from apparel to groceries. Its warehouse model allows for high-volume sales and low overhead. However, this model presents geographical limitations. As of September 1, 2024, Costco operates 891 warehouses globally, with a heavy concentration in the US, revealing a dependence on specific regions. Furthermore, the current labor dispute, with nearly 20,000 UFCW members threatening a strike by January 31, 2025, demonstrates a vulnerability to labor relations. This echoes previous labor challenges, adding to the escalating risk.

Costco's reliance on in-person sales, despite growing e-commerce investments, exposes it to evolving consumer preferences and competition from online giants like Amazon. While Costco has expanded delivery services, particularly for bulkier items, it lags behind in online retail innovation. This reliance on physical locations also makes Costco susceptible to supply chain disruptions, a challenge experienced even by large retailers like Costco, as documented in late 2024. Costco's international presence, representing 31% of its warehouses by the end of 2024, further complicates supply chain management. While international expansion offers growth potential, it also introduces geopolitical and economic risks, as highlighted in the company's own risk disclosures.

The potential confluence of these factors - labor disputes, supply chain vulnerabilities, and lagging e-commerce capabilities - creates a scenario where operational disruptions could compound, affecting profitability. A prolonged strike, for instance, could exacerbate supply chain issues and push consumers towards competitors with stronger online platforms. This scenario isn't unprecedented; similar situations have impacted the retail sector, highlighting the potential for reputational damage and lost market share. Costco's fourth-quarter net sales increase of only 1% in 2024, compared to the previous year, already hints at potential strain. Given these interconnected risks and existing operational pressures, further challenges for Costco in the near future are likely, particularly if these individual risks converge into a larger crisis.

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