Since then, Costco has evolved to where small businesses make up just one-third of its 41 million members (though they still account for 60 percent of its sales). Costco stores still sell plenty of office supplies, but they also sell diamond rings, gasoline, 300-capsule bottles of fish oil, computer flash memory cards, the latest Harry Potter book, and fresh beef, chicken, and produce - and, of course, the ubiquitous bundles of toilet paper.

Today, Costco has more than 400 locations in the United States, Mexico, Europe, and Asia, with sales of almost $40 billion in 2003. That compares to an estimated $31 billion for Sam's Club. More impressively, the typical Costco has twice the revenue as a Sam's Club, yet carries fewer items. And its membership renewal rate is 86 percent, so high that the business press describes Costco's annual membership fees as an annuity. Best yet, the average Costco shopper visits the stores more often than ever, from once every five or six weeks in 2002 to once every two or three weeks in 2003. And more visits equal more dollars.

Customers don't wheel their carts into Costco every 17 days to buy products that manufacturers are unwilling to claim. There are no black marks across clothing tags here. "When people used to think of warehouse clubs, they thought something had to be wrong with the merchandise, because it was cheaper," says Costco CFO Richard Galanti, who then makes his point by taking off his shoe, bought at Costco, to demonstrate its quality craftsmanship. "It had to be a second or a closeout or a discontinued item. Well, we had to find a way to allay those fears and reassure our customers that they were getting great prices on great items."