Costco Case Study

1. What is Costco’s business model? Is the company’s business model appealing? Why or why not?

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

Their affiliates are offered a controlled assortment of nationwide brand-names in addition to choosing private label goods in a widespread of commodities. Costco merges its fast inventory revenue with the functioning competences to track the business lucratively at a substantial lower gross margin. Moreover, Costco gains benefits of its great sales capacity and fast inventory turnover to gain the advantages of timely sum rebates from merchandise wholesalers due to the extraordinary deals and fast inventory turnover. This allows Costco to produce an abundant of cash in their account. The pricing strategy of Costco is the central factor that reinforce the low price business strategy which is to improve the limitations on brand-named merchandise which is at 14%. Which allows their members to bargain at such a low value. Costco has the prominent status amongst consumers as the number one merchant of mutable merchandise and low prices. Costco's economical benefit is positioned upon its aptitude to purchase in massive wholesale, consolidate, and sell in its

Costco has many risks associated with its financial and operational performance. One of the biggest risks that Costco is facing todays is the competition from other retailers and wholesalers, such as Wal-Mart and Target. Costco compete with its competitors for customers, qualified employees and management personnel, suitable sites and suppliers. The retail business is extremely competitive and continues to get even more completive. Such events as the evolution of retailing in online channels has improved the ability of customers to compare prices and products and as a result enhanced competition. Any significant increases of competition may adversely affect Costco’s financial performance, and make Costco incapable to compete successfully in the future.

Renee McDonald (“Plaintiff”) allegedly sustained personal injuries on October 8, 2015 while shopping at a store owned and operated by Costco (“Defendant”) in Brooklyn Park, Maryland. According to the plaintiff, while walking through the store, she tripped on mop water which caused her to fall to the ground and suffer “severe bodily injuries.” The Plaintiff claims that her fall was caused by the mop water. The mopped area had been secured with a yellow caution sign that warned customers of the wet floor. At the time of the Plaintiff’s fall, however, the sign had fallen down and was lying on the floor. Plaintiff alleges that the store did not have proper signage to warn of the hazardous condition.

Costco is one of the most profitable retail stores in the United States at the moment. This is in spite of the prevailing tough global economic times and stiff competition from stores such as Wal-Mart and Target. Costco, a members’ wholesale retail store, was founded in 1983 in Washington by Jeffrey Brotman, who serves as the current Chairman of the board of directors and James Sinegal, the current company president. Costco has not been spared by the current global economic conditions. They have affected it in a number of ways that have made the company’s management respond in a manner that is meant to ensure that the business not only survives but grows even stronger. First, Costco has taken strong measures to keep

What is Costco’s business model? Is the company’s business model appealing? Why or why not?

Costco has a cost (i.e. price) advantage and would be able to price an entrant out of the market. We must still be mindful of other big-box retailers that offer portions of what Costco has for inventory. Companies such as Super Wal-Mart, IKEA and even WinCo are lesser threats but threats all the same.

The Costco strategy for getting into the wedding gown business is to have a set of touring trunk shows at its Western stores during the season where people are planning their weddings. Costco's typical pricing strategy is to undercut competition and make up for this with high volume sales. The company applies this strategy to the wedding gown business as well. Costco offers one of the lowest prices of any company on its wedding dresses. The company's business plan ensures that the details have been fleshed out, and that has led to the unique distribution strategy for wedding gowns.

“The key elements of Costco strategy are extremely low prices, a limited selection of naturally branded and private label products, a treasure hunt shopping environment, strong emphasis on low operating costs, and ongoing expansion of its geographic network of store locations.” To provide low prices Costco caps its markup on brand merchandise at 14% compared to 20% to 50% at other supermarkets. The equals out to a sales revenue that only equales several million dollars. This number excludes all other operating factors including the membership fees. Another important element of the strategy is that unlike other retailers they don’t offer window displays or any other thrills with in the stores. They know because of the reputation and because of the value that they offer their customers that the items that they sell offer value over all else.

Costco is one of the nation’s top three retailers and the world’s largest membership warehouse chain, Costco wholesale Canada operates about 80 membership warehouse clubs across Canada. The company never advertises, charges its 64 million members to shop there and doesn’t mark up any product more than 15 percent, even at this lowest profit margin, 15% for Kirkland private brand, the products were 20% lower than comparable to other brand products. Costco works with this business model and generating $93 billion in annual sales.

Costco is an industry leader in the wholesale food and beverage market. Organizational leaders have developed a unique strategy for dominating the wholesale market, by concentrating on sales (Corona & Altamirano, 2010). Costco’s key organizational strategies consist of low prices, limited selection, and a treasure-hunt shopping strategy; all of which translates into increased revenue for the company. Costco’s business model depends on quick inventory turnover and high sales volume; therefore, an efficient chain management process is a vital component of the company’s success. Value chain management-

In 1983, Costco Wholesale Corporation, the fourth-largest retailer in the United States, was founded by former Price Club executive, Jim Sinegal, and lawyer Jeffrey Brotman. Costco focuses on selling products at low prices in bulk packaging and focuses mostly to large families and small businesses. They sell products like flat-screen TVs, gallon jugs of mayonnaise, and coffins. Costco operates 556 stores worldwide: 405 in the United States, 77 in Canada, 31 in Mexico, 21 in the United Kingdom, 9 in Japan, 7 in South Korea, 6 in Taiwan, and 1 in Australia. Costco employs 140,000 employees and accumulates $70 billion in annual sales. It became the first company to rise from zero to $3 billion in sales in less than six years, and reached

At the end of 2012, Costco was a successful business, but 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. Costco’s third issue is that their finances are too reliant on acquiring new members and not on selling their products. If they cannot keep acquiring new members at a steady rate, their financial infrastructure could suffer.

Costco has maintained steady growth as well as healthy finances. The company has maintained its operating expenses at high although steady level ranging from 98%-99%. Operating income has been managed kept its relation to growth. Net income has also been sustained at a level constant to growth. A key factor to Costco’s finances is its membership fees. It accounts for a very small amount in comparison to its net sales, but it is the difference maker between breaking even, (or taking a loss), to making a healthy profit. Costco’s membership fees account for a little less than 2% and is almost equal to its net income. Based on the company’s income statements, Costco is perceived to be in good financial condition, as income to sales ratio remains the same.