Costco's Business Model Essay

Decent Essays

1. What is Costco’s business model? Is the company’s business model appealing? Why or why not?
• Costco’s business model was to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories. Management believed that rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution, and reduced handling of merchandise in no-frills, self-service warehouse facilities, enabled the company to operate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercenters.
…show more content…

The company wants to create a sense of urgency for the customers and make them realize they need to buy the item because it may not be there next time.
This strategy seems to be working for the company because they continue to grow. They are opening new warehouses and expanding the company’s offerings of Kirkland Signature items. They also recently opened two freestanding high-end furniture warehouse businesses. Sales in 2005 at these two locations increased by 132% and profits are up significantly.
3. Do you think Jim Sinegal is an effective CEO? What grades would you give him in leading the process of crafting and executing Costco’s strategy? What support can you offer for these grades? Refer to figure 2.1 in chapter 2 in developing your answers.
• Yes, I do feel Jim Senegal was a very successful and effective CEO of Costco. He was well-liked and respected by him employees which allows for growth within a company and he stuck to his mission statement of “providing members with quality goods and services at the lowest possible prices”. His mission statement was very easy to communicate to employees, shareholders, and the general public. He managed to gain the respect of employees and the general public by being simple and down to earth, which lead to the growth of his company while being actively involved in management. I personally would give him A’s for

Get Access