⚠ A Discipline Is Only as Good as the Next Chief ExecutiveModerate threat

Everything protective about Costco's pricing is cultural rather than contractual. No covenant caps the gross margin. No regulator enforces the item count. The 11.12% is a series of daily decisions made by buyers who were taught to make them by people who were taught by Jim Sinegal, and the entire thing could be unwound over about three years by a management team that decided the shareholders deserved a bit more.

The temptation is not hypothetical, and it is enormous. Two hundred basis points of gross margin on fiscal 2025 net sales is $5,398 million — it would more than double the merchandise half of operating income¹. It would flow almost entirely to the bottom line. It would be invisible to any individual member for at least a year. And it would show up as a spectacular earnings beat.

The reason it has not happened is that Costco's leadership has been unusually continuous and unusually internal. Most officers have over 25 years of service with the company; Ron Vachris, the chief executive, joined as a forklift driver and has been an officer since 2016². The one senior external hire of recent years is the chief financial officer, Gary Millerchip, who spent his career at Kroger — a conventional supermarket, and therefore a company operating at several times Costco's gross margin.

There is no way to falsify this threat prospectively; culture is only observable in hindsight. What can be watched is the gross margin excluding gasoline, which Costco reports each quarter precisely because fuel prices distort the headline. It was 11.03% in fiscal 2025 and 11.26% in the third quarter of fiscal 2026³. Two or three consecutive years of expansion in that figure, unaccompanied by a mix shift Costco explains, would be the tell — and it would arrive long before the renewal rate reacted.