Costco Organizational Analysis - Spring 2013

The strategic objective of Costco is based on the concept of offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories while producing high sales volumes and rapid inventory turnover. This 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, enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets. (1)

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

Costco Wholesale Corporation’s organizational structure is based on the company’s current operation and locations as well as the market. The organization structure is the shape to connect different organizational components to address the business needs. Costco’s organizational structure active enables the management of operations in different markets. Even though Costco is the biggest membership warehouse club in America, and designed it structure for success in the management of it business in the U.S. and overseas. Costco would have to change its organizational structure within time to suit the expanding global operations.

Costco’s business model is focused on producing high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of national name brands and select private-label products in a wide range variety. Costco is focused in low-cost strategy is concentrated on a narrow buy segment and out competing rivals by having lower costs, therefore being able serve a niche consumers at a lower price. (Gamble, John and Thompson, Arthur (2009)

Family Dollar’s mission statement is, “For Our Customers a compelling place to shop…by providing convenience and low prices. For Our Associates a compelling place to work…by providing exceptional opportunities and rewards for achievement. For Our Investors a compelling place to invest… by providing outstanding returns” (2).

It is important for stockholders to continuously re-evaluate their investments. Although some investors do this more frequently and thoroughly than others, the majority of shareholders do so at least once each year. Therefore, Torres’ desire to update her analysis in order to determine whether Costco was still operating efficiently makes perfect sense. After thorough examination, my analysis proves that Costco remains one of the industry’s leading competitors and there seems to be no reason for Torres to sell her shares as long as she wishes to retain holdings of a

Due to the market; bargains were more important to consumers. Fifty-six of Costco warehouses exceeded $200 million in sales in fiscal 2010, and two of these units each did more than $300 million. This rate of revenue is highly attributable to the strong entrepreneurial culture that encourages its employees and management’s teams to be creative and contribute new ideas to allow the company to constantly evolve and improve. It has been well publicized that Costco rewards and compensates its employees well. It is a well oiled machine that reciprocates its success with its customers and employees.

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

Design of Goods and Services- Costco can be seen to be in their maturity stages of their life. Therefore, it is recommended for Costco to expand its Pharmacy department by at least 50%.

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Costco Sale is one of the big box retail companies with the capabilities to render value to the customers and employees in North America and the rest of the world. Costco Wholesale has the potential of solid balance sheet, and with the strength of generating cash flow, in order to carry out its operations, i.e. over $900 million was returned to shareholders in the form of

According to Deloitte’s 2014 Global Powers of Retailing Report, it identifies the 250 largest retailers around the world based on publicly available data for fiscal 2012 encompassing companies’ fiscal years ended through to June 2013; however, here mainly focuses on the Top 10 retailers’ analysis.

Costco has grown from a single location in Seattle, Washington and is now the largest membership based retailer and currently the 6th largest overall retailer in the United States. In 2011, Costco saw a 10% increase in sales and in 2012, Costco is planning on opening 14 new store locations, three of which will be outside of the US. Costco is no longer a small local retailer but now an international company with different threats and opportunities. As the company continues to grow, it is important for Costco to understand the external threats and opportunities that will impact the company in either a positive or negative way. In order understand these forces a SLEPT analysis is used to analyze the social, legal, economical,

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

Costco has had steady growth in sales and earnings going as far back as 1995 as shown in Costco’s financial reports published on their corporate website. Also, Costco’s stock had substantial growth between 1995 and 200 and has shown steady growth trends since them (Yahoo Finance, 2013). Their member renewal rate was approximately 89.7% in the U.S. and Canada, and approximately 86.4% on a worldwide basis in 2012, consistent with recent years (Costco, 2012, p. 11). Costco’s strong financial performance, stock price trends, and customer retention are all indicators that their strategy is in line with their visions and objectives.