On Costco’s fiscal second-quarter earnings call this past February, CEO Ron Vachris made a promise that should have landed with more force than it did: if tariffs raise the price of goods, Costco will refund the difference to members. Not a pause on price hikes. Not a vague commitment to “working with suppliers.” A refund. Cash back to the people who paid $65 or $130 for the privilege of shopping in a concrete box.

A pledge like that would be suicidal for almost any other retailer. For Costco, it’s just the logic of the model, followed to its natural conclusion. The company reported $70.53 billion in revenue for the quarter, up 11.6% year over year. It earned $2.04 billion in net profit. And it pulled that off while telling Wall Street, in effect, that it would rather eat a policy shock than pass it along to the people who fund the business.

This is the real story hiding underneath the “Costco is the anti-Amazon” discourse that’s been bouncing around the internet this week. The comparison is flattering to Costco, but it’s also misleading. It frames the warehouse club as a moral alternative — a kinder, gentler, more human-scale challenger to the algorithmic everything store. The implication is that Costco succeeds because it’s virtuous, and Amazon succeeds because it’s ruthless.

That’s backwards. Costco succeeds because its incentives are ruthlessly simple. Amazon’s, by contrast, are a mess.

The Membership Fee Is the Whole Business

Here is the number that matters most about Costco, and it’s not the $70 billion in quarterly revenue. It’s 2.5%. That’s roughly the markup on the goods themselves. Costco sells products at near-breakeven and makes its actual money from membership fees — $65 for Gold Star, $130 for Executive. In fiscal 2025, those fees generated around $4.8 billion, which is almost exactly the company’s annual operating profit.

This is not a “low-margin” business in the way Walmart is a low-margin business. Walmart makes pennies on every transaction and needs volume to survive. Costco makes nothing on the transaction and needs the membership fee to survive. The transaction is a loss leader for the subscription.

That distinction changes everything. It means Costco’s customer is not the person pushing a cart through the aisles. The customer is the member who renews every year. And renewal is a choice. The member can walk away. Costco knows this, and it structures every decision — from the $1.50 hot dog to the tariff refund pledge — around the fear of giving that member a reason to leave.

Amazon, by contrast, has too many customers. It sells to consumers, to third-party sellers, to advertisers, to AWS clients, to Prime Video subscribers. When one of those constituencies gets squeezed, Amazon can make it up from another. That is a strategic advantage. It is also, in a way nobody wants to admit, a trap. It means Amazon never has to be loyal to anyone. Costco does.

The Tariff Refund Is Not a Kindness

Vachris’s tariff pledge sounds generous. It isn’t. It’s a contractual obligation dressed up as corporate benevolence. The member prepaid for a year of access to goods at a certain implied value proposition. If an external shock changes that value proposition, Costco has two choices: absorb the shock and preserve the renewal rate, or pass it along and watch the renewal rate erode.

A company that depends on membership fees for its entire operating profit will choose the first option every time. Not because it’s nice. Because the math is unforgiving.

One former buyer at a regional grocery chain, who now works procurement for a Costco competitor, told me in a text exchange during market hours: “Every retailer is running the same tariff model right now. The difference is, we have to ask how much margin we can sacrifice. Costco asks how many memberships they can sacrifice. Different question. Different answer.”

That is the quiet truth of the warehouse model. It is not a higher form of capitalism. It is a narrower one. It works because it forecloses options that other retailers take for granted — like the option to squeeze the customer a little harder when the environment gets tough. Costco cannot squeeze the customer. The customer is the only thing keeping the lights on.

What the Anti-Amazon Framing Gets Wrong

The “Costco is the anti-Amazon” narrative, as popularized in a widely shared essay this week, wants to turn a business model into a morality play. It wants to say: here is a company that treats workers well, caps executive pay, and refuses to raise the price of a hot dog. Therefore, good things happen to good companies.

But the causality runs the other way. Costco treats workers well because employee turnover is expensive and a warehouse with 4,000 SKUs requires employees who know where things are. It caps executive pay because the founding family still controls enough of the company to enforce a culture. It refuses to raise the hot dog price because the hot dog is a symbol of the membership contract, and symbols have value when your entire business is built on a renewal decision.

None of this is replicable by a company that doesn’t share Costco’s specific structure. You cannot “be more like Costco” if your revenue comes from advertising, or third-party fees, or cloud computing margins. You can’t do it if you answer to a different set of shareholders, or if your founder never built the membership fee into the DNA of the business.

This is the uncomfortable part of the story. Costco is not a moral exemplar. It is a proof of concept — a demonstration that a company can be large, profitable, and durable without exploiting its customers, but only if it is willing to be boring, to grow slowly, to ignore entire categories of revenue, and to tie its own hands so tightly that it has no choice but to treat people decently.

That is not a warm and fuzzy lesson. It is a bracing one. Most companies are not willing to do any of those things. And the ones that claim they are usually aren’t.

The Unspoken Question

The real question the Costco story raises is not “Why can’t Amazon be more like Costco?” It’s “Why do we expect Amazon to be anything other than what its incentives make it?” Amazon is a marvel of diversification, logistics, and data. It is also a company that has spent two decades training its customers to accept declining service quality because the switching costs are high and the alternatives are fragmented.

Costco’s customers face no switching costs at all. They can cancel the membership and shop at a dozen other retailers within a ten-minute drive. That terror — the terror of being easily replaceable — is what produces the $1.50 hot dog, the tariff refund, the wages that beat the industry average by 40%. It is not love. It is not values. It is the cold, clarifying discipline of a business that knows exactly who it works for.

If that’s the anti-Amazon, fine. But let’s be clear about what we’re praising. We’re not praising a company that chose to be good. We’re praising a company that structured itself so it couldn’t afford to be anything else.

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