Costco (NASDAQ: COST) has been a huge winner for investors, with a 1,700%-plus share-price advance since the turn of the century. Factor in its dividend, and its total return soars to 2,600%! That's a truly incredible performance over a period of just under 25 years. It would be understandable if you wanted to buy Costco, but you need to know a few things first before jumping on this warehouse giant's stock.

Costco isn't your typical retailer because its customers pay a membership fee for the privilege of shopping at its stores. This is important because the membership fees Costco charges end up being similar to an annuity-like income stream. In the fiscal third quarter of 2024, Costco generated $1.1 billion worth of membership fee revenue. Given that there's little cost associated with that income, it made up around 50% of the company's operating income.

This gives Costco a lot of leeway regarding the prices it charges for products. Essentially, Costco can accept lower profit margins on product sales as it looks to keep its members happy because happy members renew their memberships. It is something of a virtuous cycle, with the company always looking for ways to ensure that its customers want to come back. That includes everything from strong employee relations to taking on a larger role in logistics during the coronavirus pandemic. Low prices, fully stocked shelves, and helpful employees are the goal.

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Source Fool.com