Costco runs no national advertising, employs no celebrity endorsers, and pays no influencers. It also mails the third-largest magazine in America, sells promotional placement to more than a thousand suppliers, and spent $450 million on a poultry plant to protect a price point. Its marketing is not missing. It moved.
What is Costco’s marketing strategy?
Costco’s marketing strategy replaces paid media with owned assets and supplier-funded promotion. The company limits its own promotional spending to new warehouse openings and direct mail to members and prospects, and puts the money a rival would spend on advertising into lower prices instead. Its main channels are the Costco Connection magazine, the multi-vendor coupon mailer, member email, and the merchandise itself. Suppliers pay for most of that reach. The strategy exists because an 11.12% gross margin cannot fund a normal retail ad budget, and it works because the membership fee turns retention, rather than reach, into the metric that pays.
Search for Costco’s advertising expense and you will not find one. The fiscal 2025 Form 10-K runs sixty-nine pages. It describes SKU counts, gas station numbers, renewal rates, employee wages, the Kirkland Signature trademark, and the exact square footage of 914 warehouses. Advertising appears nowhere as a cost.
Most write-ups treat that absence as folklore. Costco does not advertise because Jim Sinegal did not believe in it, because free samples are enough, because word of mouth carries the brand. Those explanations skip the arithmetic. Costco does not advertise at scale because it cannot afford to, and it cannot afford to because of a merchandising rule it wrote for itself in the 1980s and has never broken.
Once you accept that constraint, the rest of the strategy stops looking like philosophy and starts looking like engineering.
The line item Costco stopped printing
Costco used to explain its marketing policy in one sentence. The fiscal 2002 Form 10-K put it plainly: company policy limited marketing and promotional expenses to new warehouse openings, occasional direct mail to prospective members, and annual direct mail to existing members promoting selected merchandise. That was the whole plan, disclosed.
Twenty-three years later, the fiscal 2025 filing describes the business at length and never mentions marketing. The Business section covers merchandise categories, membership tiers, ancillary operations, competition, and intellectual property. No advertising figure appears in the income statement, and no advertising discussion appears in management’s review of results.
Target discloses its number. Walmart discloses its number. American Eagle discloses $251.3 million. Chewy discloses $824.9 million. Costco reports selling, general and administrative expenses of $24,966 million for fiscal 2025 and leaves it there.
The absence is the disclosure. A company that spent 1% of sales on advertising would have $2.7 billion sitting inside SG&A, and analysts would ask about it on every call. Nobody asks, because there is nothing to ask about.
The margin that forbids advertising
Costco kept $30,026 million of gross margin on $269,912 million of net sales in fiscal 2025. That is 11.12 cents on the dollar, and it has to cover wages for 341,000 employees, utilities for 134.7 million square feet, credit card interchange, depreciation, and head office.
Compare that to the companies Costco names as competitors in its own risk factors.
| Retailer | Gross margin | Period |
|---|---|---|
| Costco | 11.12% of net sales | FY2025 (ended 31 Aug 2025) |
| BJ’s Wholesale | 19.1% of net sales | FY2025 (ended 31 Jan 2026) |
| Walmart U.S. | 27.5% of net sales | FY2026 (ended 31 Jan 2026) |
Walmart’s U.S. segment spent 22.8% of net sales on operating expenses in fiscal 2026. That single expense line is twice the size of everything Costco keeps after paying for merchandise.
The cause is a rule Costco has stated for decades without ever filing it: markups cap at 14% on branded goods and 15% on Kirkland Signature. Treat that as long-standing company practice rather than a disclosed policy, because Costco has never put it in an SEC document. The effect shows up in the financial statements either way. Costco sells $269.9 billion of merchandise and keeps less of it than any large retailer in the United States.
Advertising has to come out of that 11.12 cents. So does everything else.
What a normal ad budget would actually cost
Target’s last disclosed figure puts net advertising costs at $1.5 billion, the same in 2020, 2021 and 2022. Against net sales of roughly $107 billion, that is 1.41 cents of every sales dollar, which makes Target a moderate spender rather than an aggressive one.
Apply Target’s rate to Costco’s fiscal 2025 revenue and the bill comes to $3.8 billion.
Set that against Costco’s own lines:
Spread across 81.0 million paid members, $3.8 billion works out to $46.90 per member per year. Costco collected $65.72 per paid member in fees in fiscal 2025. Advertising at Target’s modest rate would consume 71 cents of every membership dollar.
Run it the other way and the number gets worse. Costco added 4.8 million net paid members in fiscal 2025. If the entire $3.8 billion went to acquisition and nothing else, Costco would be paying $792 for each new member on a $65 subscription.
No amount of creative brilliance fixes that. Costco’s monetization forbids the channel, so Costco built different channels.
The money went into price
Skip the campaign and the money does not vanish. Costco spends it on merchandise cost, which reaches members as a lower shelf price.
The clearest evidence sits in Costco’s own comparable sales. Fiscal 2025 comps rose 6%, and Costco attributes 5 points of that to shopping frequency and about 1 point to average ticket. Members are not spending more per trip. They are coming back more often. Frequency is what price does when advertising does not exist.
Kirkland Signature carries the same logic into the product. Gary Millerchip told investors that Kirkland items typically deliver 15% to 20% more value than the national brand alternative at equal or better quality. That gap is the advertisement. A member who buys Kirkland olive oil and compares the shelf tag has received the message without Costco buying a single impression.
This is the same trade Costco makes elsewhere in its model. The company can accept a ground-floor retail slot beneath 800 apartments in Los Angeles because membership fees carry the profit, a pattern covered in our analysis of Costco’s affordable housing urban strategy. Strategy follows monetization. Marketing is one more place it shows.
Costco owns a magazine bigger than People, Better Homes and The New Yorker combined
Every month Costco mails 15.4 million copies of the Costco Connection and puts roughly another 300,000 in the warehouses. Audited circulation figures for the second half of 2024 rank it third among all American magazines, behind two AARP titles and ahead of everything commercial.
The Connection runs around 140 pages, carries recipes and celebrity covers and supplier profiles, and goes to members free. Costco staffs it with about thirty people who sit next door to the membership and marketing teams in Issaquah.
The part that matters for the business model is who pays. Longtime publisher Ginnie Roeglin said in 2015 that roughly 90% of the magazine’s advertising was co-op, meaning suppliers funded it, and that about 56% of subscribers bought something in a warehouse each month based on something they read. Costco built national magazine reach and charged the brands on its own shelves for access to it.
Alongside the magazine sits the multi-vendor mailer, the coupon booklet Costco sends in print and digital carrying offers from multiple packaged goods suppliers. Trade coverage of one recent campaign put the return at 14 to 1 with a 22% sales lift. Suppliers fund those offers too.
Costco sells marketing rather than buying it
Millerchip has been direct with analysts about what the company is doing. On the second-quarter fiscal 2026 call he said Costco already generates a meaningful amount of media revenue, that it is growing at a double-digit rate, and that more than a thousand suppliers now participate through placement or promotional opportunities. On the first-quarter call he listed media revenue alongside travel as a tailwind to the quarter.
Retail media, in his framing, is a way to reach the marketing dollars that vendors and suppliers already spend. He has pushed back on comparisons to peers running retail media at 4% to 5% of sales, describing Costco’s version as a route to reinvest value in members rather than a new margin line.
The infrastructure arrived first as personalization. Costco sent a multi-vendor promotional email to 40 million members, varying the message by shopping frequency and purchase pattern. The homepage now reads membership status: Executive members see benefit content, Gold Star members get upgrade prompts, non-members see membership information, and co-brand cardholders see spend campaigns. In the third quarter of fiscal 2026, Millerchip told investors that personalized recommendation carousels contributed just under half a billion dollars of e-commerce sales.
Note the direction of the money. At Walmart or Target, the marketing organization is a cost center that buys attention and a separate media network that sells it. At Costco there is no first half. The marketing function is a revenue line.
The $86 billion brand that never ran a campaign
Kirkland Signature launched in 1995 as a way to consolidate two dozen scattered private labels. It now covers about 600 products globally and generates roughly $86 billion a year, close to a third of Costco’s total sales. Kroger’s entire private-label portfolio, the second largest in American grocery, runs about $32 billion.
Costco’s own 10-K names Kirkland Signature as a core piece of intellectual property, says the products generally carry higher margins than national brands, and warns that a loss of member confidence in the label would hurt sales and gross margin. A brand of that scale, at any other company, would sit behind a nine-figure media plan.
Kirkland’s marketing budget is shelf position. Costco stocks fewer than 4,000 SKUs per warehouse, which means the branded alternative and the Kirkland version sit beside each other with nowhere to hide, and the price gap does the persuading. Limited assortment is usually explained as a cost decision, and our Costco value chain analysis treats it that way. It is also the most efficient advertising placement in the company, because Costco controls the entire competitive set on the pallet.
The food court is capital expenditure
Costco has sold the hot dog and soda combo at $1.50 since the 1980s and the rotisserie chicken at $4.99 since the 1990s. Both prices survived four decades of input inflation because Costco kept buying the supply chain underneath them.
When kosher hot dog suppliers ran short of beef in 2009, Costco started manufacturing its own. The company now produces 285 million hot dogs a year at plants in California and Chicago. When bird supply and sizing became the constraint on the chicken, Costco opened a $450 million poultry complex in Fremont, Nebraska through Lincoln Premium Poultry, recruited local growers, committed to run the operation for at least fifteen years, and took control of everything from hatchery to processing. The plant handles more than 100 million birds a year and was expected to save up to 35 cents per chicken.
Costco’s CFO said in 2015 that the company was willing to give up $30 million to $40 million a year of gross margin to hold the $4.99 price.
Put those two commitments on an annual basis and compare them to a rival’s media line:
Roughly $65 million a year buys Costco the two most recognizable objects in American retail. That is about 4% of what one competitor spends on advertising, and the assets keep working. A television flight ends when the money stops. The plant runs for fifteen years, and every member who walks past the food court sign gets the message again.
The one channel Costco pays for, and what it costs
Costco does buy member acquisition in one place, and its own filings show the bill.
The fiscal 2025 10-K states that memberships sold online, including through digital promotions, renew at a slightly lower rate on average, and that this drags the worldwide renewal rate down. Trade coverage of the fiscal 2025 results attributed the sequential dip in renewal, to 92.3% in the United States and Canada and 89.8% worldwide, to a higher share of online sign-ups including a large Groupon promotion.
Price the damage. Costco carried 81.0 million paid members at the end of fiscal 2025 and collected $65.72 per member. One percentage point of renewal covers 810,000 members and $53.2 million of near-100% margin fee income every year, before any merchandise those members would have bought.
Deal-site promotions deliver sign-ups cheaply, and Costco’s own disclosure says those sign-ups are worth less. The company’s response has been to promote auto-renewal, expand targeted digital communication, and add benefits, which is the same instinct that produced the magazine. Costco would rather engineer retention than rent acquisition.
That is why the renewal rate, not reach or awareness, is the number Costco reports every quarter. The subscription business model rewards the retailer that keeps members, and Costco’s marketing function is built around that scoreboard rather than a brand-tracking study.
Where this strategy breaks
Three pressures test it.
International renewal runs below the North American figure, at 89.8% against 92.3%, and Costco attributes part of that gap to newer markets where members do not arrive with forty years of reputation attached. A company that has never bought awareness has no fast tool for building it in Sweden, Japan or China. Warehouse openings and word of mouth work, and they work slowly.
E-commerce breaks the geometry. Costco’s advertising has always been the building: the pallet, the price tag, the food court, the treasure hunt aisle. Digitally enabled sales reached about 10% of the total in fiscal 2025 and e-commerce comps grew 21.5% in the third quarter of fiscal 2026. A member shopping the app never walks past the rotisserie counter. Personalization is Costco’s answer, and it is an answer that costs money to build.
Retail media carries the sharpest risk. Selling supplier-funded placement is the same mechanism that funds the magazine, scaled and targeted. Push it far enough and Costco starts optimizing shelf and homepage position for the vendors who pay rather than the members who joined, which is the trust Kirkland Signature was invented to protect. Millerchip’s insistence that Costco will not treat retail media as a separate margin line reads as a guardrail against exactly that. Whether it holds when the revenue gets large is the open question, and the Costco SWOT analysis treats member trust as the asset most exposed to it.
Frequently asked questions
Does Costco advertise at all? Barely, and never at scale. Costco’s stated historical policy limited promotional spending to new warehouse openings and direct mail to members and prospects. It reports no advertising expense in its financial statements and runs no national brand campaigns. The company does buy digital membership promotions through third parties such as Groupon, and its own filings note those members renew at a lower rate.
How does Costco attract new members without advertising? Through price reputation, warehouse openings, the household card that comes free with every paid membership, member referral, and organic social content. Costco does not pay influencers, though it is among the most-covered brands on social platforms. Its 145.2 million cardholders across 81.0 million paid memberships supply the word of mouth.
Why does Costco keep the hot dog at $1.50 and the chicken at $4.99? Both function as the advertising Costco does not buy. Rather than raise prices, Costco brought production in house, manufacturing 285 million hot dogs a year and building a $450 million poultry complex in Nebraska. The CFO said in 2015 the company forgoes $30 million to $40 million of annual margin to hold the chicken price.
Is the Costco Connection profitable? Costco does not break out the magazine’s economics, but a former publisher confirmed it makes money, and around 90% of its advertising was co-op funded by suppliers as of 2015. At 15.4 million copies a month it is the third-largest magazine in America.
What is Costco’s retail media business? Costco sells promotional placement and targeted advertising to its suppliers across the magazine, the multi-vendor mailer, email and its website. More than a thousand suppliers participate, and Millerchip has described the revenue as meaningful and growing at a double-digit rate. Costco frames it as a way to reinvest value in members rather than as a standalone margin business.
How does Costco measure marketing success? By renewal rate and shopping frequency. Costco reports renewal every quarter, at 92.3% in the United States and Canada and 89.8% worldwide for fiscal 2025. Fiscal 2025 comparable sales growth of 6% came from a 5% rise in frequency and about 1% in ticket.
The Business Model Analyst Take
Costco’s marketing strategy is the clearest example in retail of a company reading its own income statement correctly.
An 11.12% gross margin rules out buying attention. Rather than accept less advertising than competitors, Costco eliminated the category and rebuilt the function out of assets it already pays for. The warehouse becomes the media property. The pallet becomes the placement. The magazine becomes national reach, funded by the brands it features. The food court becomes a permanent campaign amortized over fifteen years of poultry processing. And the supplier who would have bought a Sunday circular ad buys a page in the Connection instead, which means Costco books the money that its rivals spend.
Read that as a lesson in monetization design rather than as retail trivia. Costco earns its profit from a fee, so it needs members to stay, not to be persuaded once. Reach is the wrong objective for a business paid annually by the same people. Frequency and renewal are the right ones, and both respond better to a lower price than to a better commercial. The Costco business model makes the choice for the marketing department before anyone in Issaquah picks a channel.
Two things would falsify the argument. If Costco launched sustained national advertising while holding the markup cap, the constraint we have described would not be binding. And if retail media revenue grew large enough that Costco started reporting it as a segment with its own margin, the company would have crossed from selling access to its members into monetizing them, which is the trade its competitors already made and the one Costco has spent forty years refusing.
Watch the renewal rate. It is the only marketing metric Costco has ever needed.
