Case Study 1: Costco Wholesale in 2012

1095 Words Jun 22nd, 2018 5 Pages
Key Issues:
At the end of 2012, Costco was a successful business; however there are some issues that they would need to deal with. These issues mainly arise from their previous successful ventures as a warehouse wholesale company. The first issue is that Costco has competitors that can actually be and are a threat to their success. Competition allows a company to improve itself and prove its prowess to its customers. However, when a competitor is able to provide the service at a much reduced cost, problems will arise. As for the second issue, it seems that Costco’s efforts to become an international company are moving slowly. They have not reached a point where their US and Canadian warehouses provide a backbone for their finances.
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Most notably, the increase from 2010 to 2011 was a staggering $9,774 in millions. Compared to the increase of $5,660 in millions from 2009 to 2010, there is a greater increase in merchandising costs that Costco should be concerned about (Thompson… 2014). These costs have been accrued through increasing gas costs for the transportation of goods and the increase in warehouses have increased preopening costs. Costco has so far been able to keep a net income possible with these increasing merchandising costs. Although if the net income is compared from 2009 to 2010 and 2010 to 2011, the amount of gain in the net income is decreasing; if left unchecked, this will become a problem. In 2009 to 2010, there was a gain of $217 million while in 2010 to 2011 there was only a gain of $157 million (Thompson… 2014). This is a smaller gain by $58 million. While it is still an increase in net income, the resulting costs of running their business have caused Costco to achieve a smaller profit margin.
Recommendations:
First Recommendation: In regards to key issue 1 and 2, Costco needs to lower its membership fees in order to attract new customers. Membership fees account for a small portion of their total revenue but membership numbers are how Costco makes its profits. In 2011, membership fees only accounted for 2.11% of Costco’s total revenue (Thompson… 2014). Lowering the annual business membership fee from $55 down to $45 would allow more people in the

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