Costco’s greatest capability is its lean operating strategy. By operating as lean as possible, Costco is able to financially flourish while offering extremely competitive prices for merchandise sold. According to “The Magic in The Warehouse” by Neal Gabler,

“Costco is a lean company. The company’s spending on basic overhead—the selling, general, and administrative category—is only 10% of revenues, compared, for example, with about 20% at Walmart. Among Costco’s efficiencies are the fact that it doesn’t advertise; it has a limited selection—only 3,700 products compared with 140,000 at a Walmart superstore and half a billion at Amazon. That allows Costco to drive hard bargains with suppliers. And it has created a distribution system that, according to Galanti, fills 95% of its freight capacity, an unheard-of number.” [3]

As referenced above, Costco is able to use lean operations to reduce costs as much as possible. Minimizing advertising expense, low overhead costs, and efficient logistics enables Costco to maintain profitability while realizing slim margins. This effect is passed along to the customer by offering extremely competitive low costs.

From a VRIO perspective, this capability can be classified as valuable, rare, and organized in a way to capture value. The exception to this is the fact that imitating a lean operation would not necessarily be costly. This is due to the fact that any firm deciding to pursue lean operations will likely be able to recoup any reorganizing and strategic costs associated with running lean.