Costco chairman on why the popular wholesale chain sells diamonds, gold bars and sports cars: 'Affluent people love a good deal'

From its $1.50 hot dog combo to its $4.99 rotisserie chicken, Costco is known for the great deals it offers customers. But the wholesale chain's focus on value appeals to more than just budget-conscious shoppers.

In an interview with Chief Executive magazine last week, Costco board chair Hamilton "Tony" James said that while most of the chain's members are average-income earners nationally, "we also have affluent members with two times the average income."

Having members with deeper pockets, he said, gives Costco the ability to do "remarkable things."

"Since the beginning, we’ve always known we could move anything in volume if the quality was good and the price was great," James said.

Indeed, Costco has sold big ticket items ranging from Rolex watches to luxury cars. Costco's website currently features a $320,000 diamond engagement ring as well as a $2,500 espresso machine.

"A Porsche dealer in Seattle put their cars on the floor of a Costco, and they sold out in a week," he told the magazine. "Affluent people love a good deal."

Last year, Wells Fargo estimated that Costco was selling between $100 million to $200 million worth of 1-ounce, 24-karat gold bars a month. James said Costco is more interested in providing a good value to its customers than a cheap price.

"If someone wants to buy a $500 TV for $250 at Costco, we want to sell them a $1,000 TV for $500 instead," he said. "We’re always trying to find better items to sell to members, giving them a great deal."

This strategy of not going too cheap on its products helps Costco bring in customers with more expensive tastes.

"I think that Costco's reputation for serving that somewhat higher-income demographic makes the chain more attractive to brands that target those shoppers, as well, creating something of a self-fulfilling cycle," Morningstar analyst Zain Akbari told CNBC Make It in 2023.

Costco's ability to make customers feel like they're getting a good value for their $65 annual membership is what keeps the chain's renewal rate above 90%.

For James, who has been on Costco's board for 36 years, it is still "fascinating" to go to board meetings and observe how well the chain can anticipate its customers' desires.

"I learn from Costco management in everything they're doing and redoing," he said. "The company is a great window on what's going in the world of consumers, what they're buying or not buying."