Analysis Of Costco Wholesale's Sales/Revenue Growth

According to Deloitte’s 2014 Global Powers of Retailing Report, it identifies the 250 largest retailers around the world based on publicly available data for fiscal 2012 encompassing companies’ fiscal years ended through to June 2013; however, here mainly focuses on the Top 10 retailers’ analysis.

With the exception of ROE, most financial ratios and even absolute values bear testimony to Wal-Mart’s recognition as the leader in the retailing industry. The reason behind Sears’s higher ROE can be explained by a comparison of the 3 ratios that constitute the ratio known as DuPont identity that is profit margin, asset turnover and equity multiplier. While both firms had similar profit margins, Wal-Mart’s asset turnover was 2.8 compared to Sears’ 1.1 due to the firm’s effective utilization of assets and lease agreements to facilitate revenue generation.

For having "2.3 million associates around the world – 1.5 million in the U.S. alone," (corporate.walmart.com), Walmart cannot simply raise employee wages even if they wanted to. That is why it took Walmart quite some time to finally lift "the base wage to $9/hour in 2015 to $10/hour in February" (Bowman) just last year. Other than wages, let 's talk about the health care programs.

We found that by compensating employees generously to motivate and retain good workers, one-fifth of whom are unionizes, Costco gets lower turnover and higher productivity. Combined with a smart business strategy that sells a mix of higher-margin products to more affluent customers, Costco actually keeps its labor costs lower than Wal-Mart’s as a percentage of sales, and its 68, 000 hourly workers in the U.S. sell more per square foot. Put another way, the 102, 000 Sam’s employees in the U.S. generated some $35 billion in sales last year, while Costco did $34 billion with one-third fewer employees” (Holmes and Zellner, 2004).

|Opportunities |Expand into new markets such as China and |Give more focus to the range of products |

In this present era, many companies that are trying to compete against their rival giant, Wal-Mart, have found it to be quite difficult. The reason being is because Wal-Mart has managed to get their suppliers to provide them with the lowest prices possible in order to increase profits. Additionally, Wal-Mart has decided to purchase as much output of any of their suppliers. In contrast, Sears has never purchased more than 50%. As a result, Wal-Mart continues to grow, while Sears deteriorates and begins to vanish.

Cost StructureWages and BenefitsIn several research attempts, Team A has discovered very little current public data on the current wages at Wal-Mart. Wal-Mart is superior with everyday low prices, but is Wal-Mart superior when one considers the market trends of wages and benefits?"Wal-Mart is offering better terms to all the people that it employs," said Tyler Cowen, an economist at George Mason University. "Most of the workforce is not employed in the fist place. The way to increase wages at the bottom end is to have a more productive economy. Wal-Mart is a step in the right direction." (Demos, 2004)Wal-Mart does not set the trends for other similar organizations to follow, and research leads one to believe the market trends of Wal-Mart's wages and benefits to be considerably lower than those of similar markets. However, as stated above, Wal-Mart is working on putting employees first and improving wages and benefits.

Walmart is the largest retail chain in the world wide and has most of its business resident in the United States. The shares size and corresponding volumes that it needs to purchase to stock its stores gives it the bargaining power to negotiate lower wholesale prices. This translates into being able to deliver low prices to its customers. The company has been in business for several years and has become a trusted brand and a household name. The size of the company has also allowed it to be able to “cope with compressed prices and margins,” and have stores throughout the country as brick and mortar stores and now online. Walmart had a profit margin of 2.35% in its most recent quarter.

The retail world is tough. Wal-Mart competes with stores like K-Mart, Target, Caldor, Bradlees and Woolworth. The last three of those operations are out of business and K-Mart is presently undergoing Chapter 11 reorganization. Target has managed to remain afloat, but has not seen growth anywhere near that of Wal-Mart. Why? All of these retailers sell basically the same things. Yet, Wal-Mart consistently outperforms all of the others. The answer lies in the Wal-Mart value proposition and marketing activities.

In terms of products, Wal-Mart does not offer any differentiation as compared to its competitors . Thus it cashes majorly on the low prices it offers. This could be effected if the average consumer 's income levels increase as the major cost leadership strategy Wal-Mart practices will not be as effective any more. Wal-Mart 's strategy which is based on a model that consists of selling a range of low- and higher-end goods at a very low markup. The low markup means that in

Wal-Mart faces substantial competitive rivalry as Target, Costco, Kroger, Safeway, Walgreens, CVS, and Best Buy are beginning to increase their sales and market shares. However, Wal-Mart’s market power cannot be ignored. The greater a firm’s capacity to favorably influence its industry environment, the greater the likelihood that the firm will earn above-average returns (p. 36).

The total Revenues for Sam’s Club for 2012, 2013, and 2014 was $53.80, $56.42 and $57.16 again the company increased in revenue not by much but enough to keep them in business. Cash Cows are the next part of this Matrix which the earnings are high stable and the cash flow at these markets are high stable as well in Walmart’s case their Cash Cow is their International Market this because they are in over 27 countries throughout the world. The total revenue for the years 2012, 2013, and 2014 was $125.87, $137.20, and $136.51. Walmart did lose some money between 2013 and 2014 but they have since recovered and CEO stated that it wasn’t a major concern (Walmart Reports). The last part of this Matrix is the dog which are low and unstable for Walmart, there really wasn’t a dog because all of their markets are doing remarkably well and are still growing at very fast pace.

Although Walmart’s success came about through successful mastery of grocery retail, it now regards its primary competition to come from “other discount retailers and department stores” (Walmart 2014 Annual Report, 2014). As a retailer of

Walmart’s business strategy is to be a price leader through the low-cost provider strategy. The company has earned great successes and competitive advantage through maintaining low costs, but it has come with many drawbacks. Walmart builds its low cost strategy on employment policies that enables the company to achieve extraordinary low employment costs. Walmart continues to face criticism, lawsuits, litigations and other issues for its human resources policies. These issues include poor working conditions for employees, low wages, lack of training, and inadequate health care and other benefits. The company has been accused of underpaying and demanding too much of its associates. Walmart has nearly a 50 percent turnover rate and it is likely that many of the new hires will quit long before they are eligible for a pay raise. Walmart’s low cost business strategy negatively impacts its workforce which leads to

1. Sources of Wal*Mart's competitive advantages in discount retailing

After a detailed analysis of Wal*Mart's main departments it is obvious that they have many competitive advantages in comparison with their business rivals. 

Wal*Mart has developed to a leading and fast growing company with a huge market value of $ 57.5 billion. Their average 20 year return on equity is 33% and their compound average sales growth amounts to 35%. Sales per foot² is nearly $ 300,00, while the industry average is $ 210,00 per foot². The total sales volume increased from $ 16 billion in 1987 to $ 67 billion in 1993. The annual earnings went up comparatively. In 1987 the total earnings amounted to $ 628 million and in 1993