CostCo Wholesale: Competitive Advantage and Sustainability Analysis

Costco buys the majority of its merchandise directly from manufacturers for shipment either directly to Costco’s selling warehouses or to a consolidation point where various shipments are combined so as to minimize freight and handling costs. As a result, Costco eliminates many of the costs associated with multiple step distribution channels, which include purchasing from distributors as opposed to manufacturers, use of central receiving, storing and distributing warehouses, and storage of merchandise in locations off the sales floors. (1)

Costco’s former CEO Jim Sinegal designed the Wholesale Club Notion in 1983. Stores were quickly spread throughout the United States, Canada, and Mexico. According to Michaud (2012), “By the end of 2008, there were 550 stores in 40 states and 7 countries, with 54 million members” (Para. 3). The company creates a global chain of warehouses that carry value products as per their slogan. Michaud further discussed that “Costco is also one of the largest corporation in the world with 663 stores

Costco’s business model is interesting because they are proficient enough to persistently promote to a niche market. By propounding the finest products feasible at

The company’s first location was opened in 1976 under the name of Price Club. Originally it served only small businesses, but later on it found that it could increase its sales by extending its services to non-business members. The first warehouse operating under the name, Costco, began functioning in 1983 in Seattle, Washington. In 1993 Costco and Price Club merged. Today, the company operates under Costco Wholesale name and has its warehouses all across the world. As of the end of 2015 it has close to 700 warehouses in total located in United States, Canada, United Kingdom, Mexico, Japan, Australia, Spain, Taiwan and Korea. Costco’s common stock trades on the NASDAQ Global Select Market under the symbol

[NOTE: For all steps, refer to the accompanying Sustainable Growth Tables" of ratio calculations for Costco and its competitors for all years measured. The table are located at the close of this section.]

Costco’s infrastructure skills and capabilities support operations for achieving low cost global leadership in warehouse retail sales and better than industry average. Costco’s culture strives to provide a limited variety of quality merchandise goods from private label and some well established brands.

The industry we have chosen is the department store-retail industry. Within this industry, we have chosen the department stores of JCPenney and Macy’s. We find this industry, as well as these two companies, interesting from a strategic perspective. JCPenney has recently undergone a massive strategic restructuring in regards to its pricing, brand offerings, and store layout, pushing it away from the typical department store strategy of discounts and coupons. Its new strategy has become much closer to Wal-Mart’s strategy of every day low prices. Macy’s, on the other hand, has restructured with a push from the economic

Ultra-low prices and treasure-hunt shopping cause merchandise to move quickly. The ensuing high sales volume and rapid inventory turnover allow Costco to sell inventory as soon as it arrives at the warehouse resulting in significant savings. To ensure ultra-low prices Costco caps mark-up at 14% and marks up Kirkland products at only 15%. Treasure-hunt shopping creates a sense of urgency as members know they better buy an item or it will not be there the next time.

Weis's gross margin is almost double Costco's. Weis's gross margin is 25.33% as of 2016, while Costco's is 13.33%. Looking at Weis's ratio, 25% means Weis retains 25 cents in gross profit for every dollar in sales. To get gross

Costco as a company began operations in 1983 with its headquarters in Issaquah, Washington (Costo 1). It was founded in Washington, United States by James Sinegal and Jeffrey Brotman. Brotman comes from a family that had been involved in retail business before the establishment of Costco. Therefore assuming that his background may have prepared him for running Costco

In September 1983 Costco's first warehouse opened in Seattle, Washington. At this time, warehouse outlets had long existed, but the concept of a wholesale club was relatively new and promising. Dubbed "buyers' clubs" and begun in 1976, these warehouses were wholesalers that required shoppers to become members and pay an annual membership fee. The membership fee helped reduce already-low overhead, so that items could be sold at an average of 9 percent over cost from the manufacturer. At the time Costco was formed, membership warehouses were primarily a West Coast phenomenon; however, since then, their popularity has spread throughout the United States, across the borders to Canada and Mexico, and beyond to many other countries.

On September 15,1983 the world had witness the opening of Costco the first warehouse on Seattle, Washington by James Senegal and Jeffrey H. Brotman. The owners had started in distribution their wholesale by working for Price at both FedMart and Price Club and Brotman, an attorney from an old Seattle retailing family, had also been involved in retail distribution from an early age.

Costco is among the leading global retailers which provide customers a wide range of merchandise, ranging from small to well-known brands. The company began operations in 1983. Over the years, Costco has been a retailer in low cost membership-only leader, in warehouse club of merchandise. Moreover, Costco does not offer frills warehouse business models as its competitors do.  Costco’s major competitors are BJ’s Wholesale Club and Sam Club (Costco, 2010).

In this project further comparison and contrast of business plans will demonstrate the main strengths and weakness of Coles and Café Paradiso. That directly influences the productivity and sales of business. Coles as a large scale business have to deal with larger number of audience they have to face strong competitors against them in market including Woolworth and ALDI. Coles have more than 90, 000 employees including 4.5 million people as customers . Woolworth with its almost 40% shares in business industry considered as the strongest competitor of Coles.

According to Blacktown City Council (2014), Costco Wholesale Corporation operates an international chain of membership warehouses which carry quality brand name merchandise at substantially reduced prices compared to other conventional wholesale or retail outlets. It began its operations in 1983 in Seattle, Washington and later merged with The Price Company in October 1993 operating under the name PriceCostco, had 206 locations generating $16 billion in annual sales (Costco Wholesale, 2015). As of December 2014, the Company operated a chain of 671 warehouses in 43 states, Washington, D.C., and Puerto Rico (474 locations), nine Canadian provinces (88 locations), Mexico (34 locations), the United Kingdom (26 locations), Japan (20 locations), Korea (11 locations), Taiwan (10 locations, through a 55%-owned subsidiary), Australia (seven locations) and Spain (one location). The Company’s online business also operates websites in the U.S., Canada, U.K., and Mexico (Costco Annual Report, 2014).