Costco's CEO explains how they make record profits:

[jmowreader]

25. There are a BUNCH of differences

Everyone who has a Costco card, this exercise is for you: On your way to Costco next time, stop first at Walmart and buy soap. (Or anything really, but soap is something we all use so why not.) You will see they've got every kind of soap known to man. If there was such a thing as Ball Soap just for washing men's private parts, Walmart would have it. And it's in many different sizes - three-bar packs, eight-bar, single-bar. Then go to the soap aisle at Costco. They've only got a couple different soaps, and most of what they have is Kirkland Signature - Costco's house brand. All of it's in big packages.

In retail, we have a thing called "turns." What it basically means is, how many times per year can we completely sell through our inventory? If your store keeps 100 cans of purple spray paint on hand at all times, and you sell 1000 cans of it a year, you are doing 10 turns on this product. Each item has a turn rate, each department has one and the whole store has one. Because you borrow money to buy inventory, the slower your turn rate is the more each item costs you.

Now, the most certain way to increase the turn rate on an item is to reduce the number of choices a customer can make. If you sell a thousand bars of soap a day and you have a hundred choices, you'll sell a lot of some brands, a little of some others and none of some, and pay interest on the loans on them all. If you sell the same thousand bars and all you have is a "mild" bar, a "beauty" bar and a "deodorant" bar (which only differ in color and aroma), they'll all turn quickly. And if you require your vendors to package merchandise so it can be shelved quickly, you need fewer employees to get the job done.

Costco doesn't make record profits because they treat their employees well. They make those profits because their business model is so highly tuned.