...ASSIGNMENT QUESTIONS: Costco Wholesale Corp.: 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco business model is meant to maximize efficiency by depending on a high sales tied with quick inventory earnings. Costco’s concept is base on offering members the lowest price on a limited selection of national brands, the warehouse format maintain a low cost rate as they buy and sell items in bulk. Costco memberships keep customers loyal, because it accumulate most of its profit from membership fees, they’re able to sale their goods at a very low markup price. Overall Costco’s business model is very appealing, while being positioned to grow its business for the foreseeable future, it has many benefits. Example, efficiency inventory combine with quicker inventory turnover will reduce Costco cots of selling goods. High sales volumes combine with quick inventory allows Costco to sell and receive cash for goods before it has to pay for any of its merchandise, which allows Costco to finance a large percentage of its inventory through the payment terms provided by its vendor rather than having to maintain a sizable working capital to pay for its merchandise. It’s high end target product result in bringing in high-end consumer into its stores which is another reason it’s appealing. 2. What are the chief elements of Costco’s strategy? How good is the strategy...
Words: 1456 - Pages: 6
...Costco Wholesale Corp 2012 Case Study Costco’s business model is based on a best-cost strategy. They take the low-cost provider approach and combine that with creating value for the various stakeholders by focusing on excellent customer service, a strict code of ethics, treating employees like family, respecting suppliers, rewarding shareholders, and a strong sense of environmental stewardship. They have implemented unique cost-saving strategies in their production, operations, and marketing which have allowed them to attract the most affluent customers in discount retailing. The central focus of their business model revolved around high sales volumes and rapid inventory turnover by offering subscription paying members attractively low prices on a limited selection of nationally branded and private label products in a wide range of merchandise categories. The broad appeal of the company’s low prices helps to promote high levels of store traffic and large sales volume. The business model works because it provides the ability to operate profitably at much lower gross margins by securing vendor volume purchasing agreements, efficient distribution, no-frill self-service warehouse facilities and supplemental membership fee revenue. Another attractive feature is due to the high sales volume and rapid inventory turnover design of this business model, the accelerated cash conversion cycle permitted Costco to collect the funds for inventory prior to vendor payables becoming...
Words: 755 - Pages: 4
...Costco Group Case Study 1. What is Costco's USP (Unique selling proposition) Costco’s USP is a simply based approach: to do what is best for the customer as well as the employees. According to the article, “the emphasis is on moral leadership…business decisions are made on the broader criteria of whether they are creating a better value for the customer and whether they are doing the right thing for their employees and stakeholders.” Simply stated, happy employees that are treated with compensation and respect in turn make for a happy business environment that in turn makes for happier customers and increased revenues. All of this must be obtained through their five- point code of ethics (decisions must be lawful, serve the best interests of the customers and employees, respect suppliers, and reward shareholders.) 2. How are they different from their main competition - Sam's club There are many ways that Costco is different from its competitor of Sam’s Club: Rock bottom pricing, razor thin profit margins, focus on value but also a unique corporate culture that gives not only lip-service to the value of employees but also maintains a reputation of honoring that value; Ownership believes that success lies in the way the company ventures from the norm by overturning conventional wisdoms; They consider their people their competitive edge; Labor and benefits make up 70% of their operation costs, meaning that it is more important to them to be loyal and gracious to...
Words: 997 - Pages: 4
...categories. A second element of their business model allowed it to sell and receive cash for their inventory all before having to pay most of its merchandise venders. - I feel that the company’s business model is very appealing to many customers seeing the fact that in January of 2012, they had a total of 598 warehouses spread out across the world. They also recorded record high revenues of $88.9 billion and a net income of $1.46 billion. The fact that people can go in and see very familiar products at a lower price makes them want to buy it there over other places. Society is all for trying to find the lowest priced goods. 2. What are the chief elements of Costco’s strategy? How good is the strategy? - The main strategy for Costco were their ultra-low prices, a selection of nationally branded and private-label products, a “treasure hunt” shopping environment, strong emphasis on low operating costs, and geographic expansion. - I think the strategy is perfect for a company like this because society is about saving money and finding the lowest priced goods. Their products range from all types of food, technology, household products, and clothes. The selection for each product category was deliberately limited to mostly fast selling models, sizes and colors. The “treasure hunt” environment that they have gets people to look around to find what they need instead of having a sign that shows them where each product is. By doing this, the customer may see something else...
Words: 1177 - Pages: 5
...Costco Case Questions 09/26/2013 Question 1: Competition in the North American wholesale club industry is high, with Costco being its leader at 56% of the market share. Main ways to compete are lower prices, more efficient operations, and reduced labor and overhead costs as well. Some of the clubs do the bare minimum in advertising while others, like BJ’s, spend more money on it (special Christmas radio advertisement and such). Out of the five competitive forces, the strongest is the rivalry between the competitors, because all of the players in this market attempt to offer high-quality products at lower prices. According to Figure 3.3, one of the reasons for rivalry amongst competitors to be strong is a relatively low cost to buyers to switch brands, and also if buyer demand is growing slowly, both of which are true in this case. All competitors in this industry are focusing on low margins on the products and high volumes of sales. Suppliers do have some power and influence on the wholesale club members, especially in the case with Costco, which buys some of its goods on the gray market and is known to sell some big-ticket items, but with globalization happening and more and more of suppliers being available around the world, they do not present a reason for concern as high as the rivalry between market players. Customers are always looking for lower prices and higher quality of merchandise, which Costco has been excellent at providing. BJ’s strategy is to give a better...
Words: 1292 - Pages: 6
...Costco Case Study Costco Case Study In a time of global financial turmoil and shifting demographics, Costco must find ways to attract and retain customers to maintain market share and profitability. In the last 27 years Costco has become the fourth largest retailer in the United States and the eight largest in the world. By the end of 2009 it had 413 stores in the USA, 77 in Canada and 21 in the UK, 9 in Japan and 7 in Korea Australia has one and Taiwan has six (not including joint ventures in Mexico). The American and Canadian operations supply 93% of their net consolidated sales in 2008 and 2009 and 92% of the operating income. Declines in California or in Canada would be a serious blow to the company’s bottom line. The economy is taxing and retail sales are down for all major retailers. Costco must continue to respond effectively to all competitive pressures and adapt to changes in the industry. With higher interest rates, higher consumer debt loads, energy costs, inflation, cost to find and retain employees, and reduced consumer confidence in the market Costco faces a tough economic environment which can affect demand for their products and services. In addition, commodity prices like gasoline and food can shift dramatically. Costco has no assurance of vendor supply for merchandise and thus they are vulnerable to changes in the terms of sale, pricing and access to new products is not guaranteed. Out of stock positions can lead to loss of sales and consumer trust. Costco...
Words: 1101 - Pages: 5
...COSTCO ASSIGNMENT QUESTIONS 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco operates on a low-cost business model, which is extremely successful for them. They strive to keep their customers coming back by providing them with the lowest possible prices every time. They also focus on providing their customers with products they will actually want and will buy. This is a very appealing business model because since they run on a membership fee and because of their extremely fast turnover rates, they know that they will be financially stable for a while. We can also see that their business model is effective based on their financial statements, so we know that whatever they are doing is working for them as a company. 2. What are the chief elements of Costco’s strategy? How good is the strategy? The chief elements elements of Costco’s strategy include: low-cost, providing their customers with active items, limited selections of brands, “treasure hunt experience” and company expansion. I believe that because of their super low prices, they make a large amount of their money from the membership fees, without that they might not be nearly as profitable. However, because of the treasure hunt experience, geographical expansion, and product selection they do have a good strategy and allows them to be successful. 3. Do you think Jim Sinegal has been an effective CEO? What grades would you give him in leading...
Words: 1028 - Pages: 5
...Costco Inc. 2012: A Wholesale Membership Industry Analysis Using the Porter’s Five Forces Model Costco’s Company Background Costco is the third largest retailer in the U.S. as well as the seventh largest retailer in the world. It is leading the discount warehouse and wholesale club segment of the North American retailing industry. As of 2012, Costco had a total of 598 warehouses internationally. Costco’s fiscal 2011 total revenue was $88.9 billion and net income was $1.46 billion. Additionally Costco had $1.9 billion of membership fees revenue acquired from 25 million households and 6.4 million businesses making it the leader in the wholesale, membership industry. The annual sales for one of Costco’s competitors, Sam’s Club, averaged $146 million with a $78 million average per store. Costco’s business model aims to generate high sales volumes and rapid inventory turnover by offering fee-paying members attractively low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise category. Rapid inventory turnover, low operating costs through purchasing high volumes, efficient distribution, and reduced merchandise handling costs are the major factors that make Costco profitable with relatively lower gross margins than other wholesale competitors. Also, the membership fee required from customers is a major revenue source thataccounts for approximately 70 percent of its total revenue annually. Additionally, Costco...
Words: 2955 - Pages: 12
...Question 1 What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco’s business model focuses on selling limited selection of products at low prices, often at very high volume and rapid inventory turnover. These goods are bulk-packaged and marketed primarily to large families and businesses. Costco does not carry multiple brands or varieties where the item is essentially the same. It provides members with a selection of only about 4000 items, this results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors. Costco’s business model is appealing because rapid inventory turnover, high sales volume per warehouse, low prices, reduced handling of merchandise, are all elements that create value to a Costco’s members, and make the company successful. Question 2 What are the chief elements of Costco’s strategy? How good is the strategy? The chief elements of Costco’s strategy are: Low prices: Costco’s pricing strategy is to cap the margins on brand-name merchandise at 14 percent (compared to 20-50 percent margins at other discounters and many supermarkets. The margins on Costco’s private-label Kirkland Signature items are a maximum of 15 percent. Costco’s strategy...
Words: 960 - Pages: 4
...Costco Case Study The chief elements of Costco’s strategy are low pricing, limited product selection, and a treasure hunt shopping environment. • Pricing: a key element of their pricing strategy is to cap its markup on brand-name merchandise at 14% and markups on their private label items can be no higher than 15%. This strategy keeps customers coming in to shop by enticing them with low prices. • Product Selection: this portion of the strategy only provides members with a selection of about 4000 items. Their product range covers a broad spectrum but the selection in each product category is limited based on fast-selling models, sizes, and colors. • Treasure-Hunt Merchandising: while the product line consists of 4000... Costco goes out of its way to surprise and excite its visitors with limited availability designer items. This solves two major challenges faced by warehouse stores – with products sold in such huge quantities, why visit regularly and why buy now. While Costco strives to beat the competition’s pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. This strategy works well for Costco, given its customers are the most affluent of all the warehouse clubs, with average incomes around $75,000. However, these customers are also value conscious, as evidenced by the members who opt for executive memberships, although it costs more per year, to take advantage of a 2% discount on most...
Words: 328 - Pages: 2
...a broad spectrum but the selection in each product category is limited based on fast-selling models, sizes, and colors. • Treasure-Hunt Merchandising: while the product line consists of 4000... Costco goes out of its way to surprise and excite its visitors with limited availability designer items. This solves two major challenges faced by warehouse stores – with products sold in such huge quantities, why visit regularly and why buy now. While Costco strives to beat the competition’s pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. This strategy works well for Costco, given its customers are the most affluent of all the warehouse clubs, with average incomes around $75,000. However, these customers are also value conscious, as evidenced by the members who opt for executive memberships, although it costs more per year, to take advantage of a 2% discount on most purchases. While this group only accounts for about a fourth of the company’s memberships, they represent nearly half of its net sales. Financial Perspective The gross margin currently falls into the normal range for this industry. In 2001 the gross margin was 10.4% and as of August 2010 the margin was 13.8%. The increase indicates Costco has become more efficient in their negotiation of pricing when...
Words: 1084 - Pages: 5
...hpu | Case Study: Costco Wholesale vs. Sam's Club vs. BJ's Wholesale | Management 4001 | | Danielle Lewis | 2/3/2012 | | Costco Wholesale vs. Sam's Club vs. BJ's Wholesale The main strategic issue that is faced by Costco (and by Sam's Club to a lesser extent) is the fact that it has trouble competing with BJ's Wholesale on some key factors of customer service. Costco is a warehouse-style retailer, just like the other two companies. Typically, these companies offer lower prices, but consumers who shop there also need to buy their items in bulk (Thompson, 2011). They get fewer perks, such as fixtures and décor, but that saves them money in the long run. It is a very "no frills" shopping experience which suits many people who prefer to buy their items in bulk and not have to shop as often as they otherwise would (Barrett, 2003; Thompson, 2011). Mostly affluent and middle-class people shop at these kinds of stores, as well as many small business owners. People who have less money typically stay away from Costco and other, similar stores because there is a membership fee and buying in bulk can result in larger outlays of money at one time - something many people with lower incomes simply do not have. While Costco is doing well, its strategy of providing that no frills experience for buying bulk goods has been recently called into question. It has been called into question because Sam's Club and BJ's Wholesale are doing more now in order to provide customers...
Words: 1817 - Pages: 8
...Costco Wholesale Case Analysis Management 370-3 Dr. Xu December 7, 2014 The Costco warehouse club has been in business since 1970. Founded by James Sinegal and Jeffrey Brotman. Costco has become the number one warehouse store in the world. With over 488 locations and serving 48 million cardholders in eight countries. The warehouse club keeps growing and has become a successful warehouse club. The founders created guide lines to follow to achieve their goals as an organization. Obeying the law,take care of its customers, take care of employees, respect its suppliers and reward their shareholders. The Costco Organization strongly believes that taking care of their employees and providing them a generous pay is Costco’s key to success. Costco holds nearly one hundred and twenty-five thousand highly motivated employees. It is know that Costco’s employees are one of the best paid and happy employees in the retail business. The warehouse club has become the consumers place to go to, where they will find high quality products at rock bottom prices. Moreover, the issue that Costco is facing is the continuous expansion of their warehouses globally and paying their employees more than the average salary for warehouse employees. Costco’s employees are rewarded with very generous wages, bonuses and healthcare benefits. The employees salary is about forty two percent higher than competing retail stores. This could affect the organization in the long rung. Even...
Words: 2273 - Pages: 10
...Manjil Shah BUSN 495 Case 2 Case summary Costco Wholesale in 2012: Mission, Business Model, and Strategy Jim Sinegal, co-founder and long-time CEO of Costa Wholesale, was the driving force behind Costco’s 29-year march to become the third largest retailer in the United States, the seventh largest retailer in the world, and the clear leader of the discount warehouse and wholesale club segment of the North American retailing industry. Sinegal spent considerable time touring Costco stores, using the company plane to fly from location to location and sometimes visiting 8 to 10 stores daily. The membership warehouse concept was pioneered by discount merchandising sage Sol Price, who opened the first Price Club in a converted airplane hangar on Morena Boulevard in San Diego in 1976. The company headquarters was in Issaquah, Washington, nor far from Seattle. The Board elected Craige Jelinek, President and Chief Operating officer since February 2010, to succeed Sinegal and hold the titles of both President and Chief Executive Officer. Numerous company documents stated that Costco’s mission in the membership warehouse business was: “To continually provide our members with quality goods and services at the lowest possible prices.” The key elements of Costco’s strategy were ultra-low prices, a limited selection of nationally branded and private-label products, a “treasure hunt” shopping environment, strong emphasis on low operating...
Words: 307 - Pages: 2
...CASE 17 COSTCO CASE STUDY Case study questions 1. What generic business level strategy (Chapt 5) is Costco pursuing. Explain your choice. Companies that target one or a few segments and try to be the low cost player in that segment are perusing a focus-low cost strategy. Such companies tend to produce a more basic offering that is relatively inexpensive to produce and deliver. This helps to drive down their cost structures. Costco sells a limited range of merchandise in large warehouse type stores. A Costco store has about 3,750 SKU’s compared to the average 124K SKU’s at an average Walmart supercenter. Costco offers consumers the ability to make bulk purchases of basic goods like dog food and breakfast cereal at lower prices than found elsewhere. As of 2011, Costco maintains the number 1 spot in industry inventory turnover ratio, and number 3 in the retail sector. Thus, we can conclude that Costco definitely does a good job tailoring its products to the needs of the segment and, in doing so, is able to successfully undercut the cost structure Walmart achieves with their colossal economies of scale. 2. Describe four functional-level strategies that Costco has implemented to support their business level strategy. Label the function (marketing, production, R&D, etc - see Chapt 4) under which the strategy falls. Human Resources Strategy - Costco pays their employees substantially more than what other competitors in industry as well as the sector pay. Along those same...
Words: 1282 - Pages: 6
