The Globe and Mail recently reported about Costco’s unexpected gains. Costco Wholesale Corp., who recently raised membership fees, experienced higher profits than originally expected. They earned $609 million in the fiscal fourth quarter, a vast increase compared to the $478 million earned in the same period last year. Despite a 10% increase in membership fees, revenue from memberships grew by 18%.

These recent findings further outline the attractiveness of the wholesale industry. Low supplier power is evident due to the large quantities that stores like Costco purchase. Since suppliers rely on Costco to purchase such a great amount from them, Costco can buy for a lower cost. The recent figures regarding the inelasticity of raising membership fees show that the wholesale industry also has low buyer power. When Costco increased their fees, customers were not sensitive to the change. To still experience the unique service that Costco offers, they had to accept the increased fees. In addition, there are only a handful of rivals that offer a similar service to compete with.

With this all information, it’s is inevitable to wonder why there are not more discount wholesale stores competing with stores like Sam’s Club and Costco. Of course, one must consider the high entry barriers that eliminate almost all threat of new competition.