Case Study 1: Costco Wholesale in 2008: Mission, Business Model and Strategy

1438 WordsAug 23, 20136 Pages
CASE STUDY 1: COSTCO WHOLESALE IN 2008: Mission, Business Model and Strategy A retailing company with a mission to continually provide members with quality goods and services at the lowest price possible, Costco Companies, Inc.’s business model was to generate high sales volume and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories. It is very much appealing as small businesses are the definite target customers. Low price definitely attracts more customers, and is strategically advantageous to this kind of industry. Costco’s low price strategy is the highlight of the company’s strategy and is very…show more content…
As shown in the table below, days of inventory shows a decreasing trend, signifying its improved efficiency in its inventory management. Number of inventory turns per year also shows an increased performance. This contributes to its goal of rapid inventory turnover making Costco operate profitably, shown by increased net sales and net income. | 2008 | 2007 | 2006 | 2005 | 2004 | Days of Inventory | 25.91311 | 28.22779 | 28.36394 | 28.2572 | 28.74198 | Inventory Turnover | 12.6023 | 11.56999 | 11.56435 | 11.54346 | 11.3743 | Net Sales | 70977 | 63088 | 58693 | 51862 | 31621 | Net income (without interest and without taxes) | 1283 | 1083 | 1103 | 1063 | 631 | Although, sales, income and growth through expansion generally have increasing trends, there are some items that were greatly overlooked. Its profitability performance is summarized in the table below: | 2008 | 2007 | 2006 | 2005 | 2000 | Gross Profit Margin | 0.105 | 0.105 | 0.101 | 0.106 | 0.104 | Operating Profit Margin | 0.028 | 0.026 | 0.028 | 0.028 | 0.033 | Net Profit Margin | 0.016 | 0.015 | 0.016 | 0.018 | 0.018 | Return on Total Assets | 0.062 | 0.055 | 0.063 | 0.006 | 0.073 | Return on Equity | 0.140 | 0.126 | 0.121 | 0.120 | 0.149 | Earnings per share | 2.888 | 2.367 | 2.296 | 2.161 | 1.326 | For the Past eight years, the gross profit margin remain almost constant at 10% which signifies weakness in improving its profit by generating high revenues and lower costs.

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