Economic:

UNITED STATES:
General economic factors, domestically and internationally, may adversely affect Costco’s
financial performance.

Higher interest rates, energy costs, inflation, levels of unemployment, consumer debt levels, and
other economic factors could MOVE TO BOTTOM adversely affect demand for their products
and services or require a change in the mix of products they sell that adversely affects
profitability.

These factors can also increase the cost of sales and operating, selling, general and administrative
expenses, and otherwise adversely affect our operations and results.

General economic conditions can also be affected by the outbreak of war, acts of terrorism or
other significant national or international events. The US Economy has the world’s largest
economy and the most technologically advanced. It has a great gap between the wealthy and the
poor as well as those that live comfortable and those who struggle. Such a huge gap between
classes that is continuously getting wider can be a problem for Costco. They target a middle
class and upper middle class which are slowly disappearing and have to struggle to define who
they target. US economic strength is based on diversified industrial and services sectors,
investments abroad, the dollar as a major world currency, a demand driven consumer society and
exports. Service sector employs more people than manufacturing but US remains leader in
industry and high technology. These are all positive factors that affect Costco with a strong work
force and a consumer driven society. Canada is another place Costco does business and also has
one of strongest economies in the world. They are the leader in the production of gold, silver,
copper, uranium, oil, natural gas, agriculture, wood pulp, and timber related products. In 1993,
Canada signed NAFTA with Mexico and the US for freer movement of capital and goods making
it easies for Costco to operate there. Their currency is the Canadian dollar which is weaker then
the American dollar and more then 14 percent of the population live in poverty. Costco takes a
monetary loss when doing business in Canada because of their weaker currency. Japan Economy
is another contender for one of the world’s largest economies. They do however face many
challenges in their operation such as few natural resources forcing them to import most raw
materials. Only 12 percent of the land can be used for cultivation and they import nearly half of
their food supply. The US is Japans biggest trading partner and although there is some friction
between the two nations with trade, overall they support each other in major economic
difficulties. Good relations with Japan allow Costco to more easily do business. Japan has a
record high in unemployment, slipping productivity, low consumer spending, and high
bankruptcy. Also lack of economic reform has inhibited recovery and growth. When operating
in Japan, Costco faces many economic challenges such as the low consumer spending and high
bankruptcy. However, opening new stores there might allow for more employment and fuel the
economy in its favor. Overall, there are many economic factors that Costco faces.

The US has the largest and most technologically powerful economy in the world with a $40,100 per
capita purchasing power according to 2004 statistics. They have the fastest growing GDP and one of the
lowest unemployment rates showing a healthy and prosperous economy for Costco to be in. There
inflation rate is however, the highest of the three countries which causes Costco to face high cost of goods
sold. US as compared with Japan has more flexibility to expand capital plant, to lay off surplus workers,
and to develop new products. At the same time, the US faces higher barriers to enter their rivals' home
markets than foreign firms face entering US markets.

United States Canada Japan

GDP Real Growth 4.4% (2004 est.) 2.4% (2004 est.) 2.9% (2004 est.)
Rate
GDP Per Capita purchasing power parity - purchasing power parity - purchasing power parity -
$40,100 (2004 est.) $31,500 (2004 est.) $29,400 (2004 est.)
Unemployment 5.5% (2004 est.) 7% (2004) 4.7% (2004 est.)
Rate
Inflation Rate 2.5% (2004 est.) 1.9% (2004 est.) -0.1% (2004 est.)
Population Below 12% (2004 est.) 15.9% (2003) NA
Poverty Line

Demographic/Sociocultural:

United States Canada Japan

Ethnic Groups white 81.7%, black 12.9%,
Asian 4.2%, Amerindian
and Alaska native 1%,
native Hawaiian and other
Pacific islander 0.2%
(2003 est.)
note: a separate listing for
Hispanic is not included
because the US Census
Bureau considers Hispanic
to mean a person of Latin
American descent
(including persons of
Cuban, Mexican, or Puerto
Rican origin) living in the
US who may be of any
race or ethnic group
(white, black, Asian, etc.)
Languages English 82.1%, Spanish
10.7%, other Indo-
European 3.8%, Asian and
Pacific island 2.7%, other
0.7% (2000 census)
Population 295,734,134 (July 2005
est.)
Population Growth 0.92% (2005 est.)
Age Structure 0-14 years: 20.6% (male
31,095,725/female
British Isles origin 28%,
French origin 23%, other
European 15%,
Amerindian 2%, other,
mostly Asian, African, Arab
6%, mixed background
26%
English (official) 59.3%,
French (official) 23.2%,
other 17.5%
32,805,041 (July 2005
est.)
0.9% (2005 est.)
0-14 years: 17.9% (male
3,016,032/female
Japanese 99%, others 1%
(Korean 511,262, Chinese
244,241, Brazilian
182,232, Filipino 89,851,
other 237,914)
note: up to 230,000
Brazilians of Japanese
origin migrated to Japan in
the 1990s to work in
industries; some have
returned to Brazil (2004)
Japanese
127,417,244 (July 2005
est.)
0.05% (2005 est.)
0-14 years: 14.3% (male
9,328,584/female
 29,703,997)
15-64 years: 67% (male
98,914,382/female
99,324,126)
65 years and over: 12.4%
(male 15,298,676/female
21,397,228) (2005 est.)
Literacy Rate definition: age 15 and over
can read and write
total population: 97%
male: 97%
female: 97% (1999 est.)
Political/Legal:
United States
Government Type Constitution-based federal
republic; strong democratic
tradition
Legal System federal court system based
on English common law;
each state has its own
unique legal system, of
which all but one
(Louisiana's) is based on
English common law;
judicial review of legislative
acts; accepts compulsory
ICJ jurisdiction with
reservations
Budget revenues: $1.862 trillion
expenditures: $2.338
trillion, including capital
expenditures of NA (2004
est.)
Technological:
United States
Telephones-Main Lines 181,599,900 (2003)
Telephones- Cellular 158.722 million (2003)
Phones
Internet Users 159 million (2002)
Source: CIA World Factbook: http://geography.about.com/library/cia/blcindex.htm
2,869,244)
15-64 years: 68.9% (male
11,357,425/female
11,244,356)
65 years and over: 13.2%
(male 1,842,496/female
2,475,488) (2005 est.)
definition: age 15 and over
can read and write
total population: 97%
(1986 est.)
male: NA%
female: NA%
Canada
a constitutional monarchy
that is also a parliamentary
democracy and a
federation
based on English common
law, except in Quebec,
where civil law system
based on French law
prevails; accepts
compulsory ICJ
jurisdiction, with
reservations
revenues: $151 billion
expenditures: $144 billion,
including capital
expenditures of NA (2004
est.)
Canada
19,950,900 (2003)
13,221,800 (2003)
16.11 million (2002)
8,866,772)
15-64 years: 66.2% (male
42,462,533/female
41,942,835)
65 years and over: 19.5%
(male 10,435,284/female
14,381,236) (2005 est.)
definition: age 15 and over
can read and write
total population: 99%
male: 99%
female: 99% (2002)
Japan
constitutional monarchy
with a parliamentary
government
modeled after European
civil law system with
English-American
influence; judicial review of
legislative acts in the
Supreme Court; accepts
compulsory ICJ jurisdiction
with reservations
revenues: $1.401 trillion
expenditures: $1.748
trillion, including capital
expenditures (public works
only) of about $71 billion
(2004 est.)
Japan
71.149 million (2002)
86,658,600 (2003)
57.2 million (2002)