Costco Wholesale Case Study Essay example

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)

David Jones’ gross profit margin for the past three years has remained stable with minimal fluctuations. The following calculated figures are for the year 2010, 2011, 2012, and 2013; 39.73%, 39.10%, 37.50% and 37.8% respectively. Such an observation is desirable as it is indicative that the company is financially stable as it is generating enough income to cover its operating expenses and make savings. It suggests that the industry in which the company operates has not experienced drastic economic fluctuations that can affect the company’s cost of goods sold. However,

1) Should Wal-Mart be expected to protect small businesses in the communities within which it operates?

Costco Wholesale Corporation operates an international chain of membership warehouses, which carries quality, brand name

Majority of Costco warehouses is located in U.S. and Canada. Therefore, Costco’s financial and operational performance is highly dependent on U.S. and Canadian operations. Within the U.S. it is highly dependent on its California operations, which contained almost third of U.S. net sales. Any substantial decline in California operations could

Sears asset-to-equity ratio had been consistent decreasing from 6.60 to 5.45 until 2001 when it increased to 7.24. This is the highest ratio of any Costco competitor. Although this ratio is high, the instability of the number over the periods measured may discourage investment.

In my understanding of the case study one the CEO Jim Sinegal has proven to be an effective CEO. I would give Mr. Sinegal a “B+” in overall strategic Management Process. In developing a strategic vision he has visualized who, what, and how he is going to sell Costco products. The managements vision is to have rapid inventory turn-over, with operating efficiencies by volume purchasing, efficient distribution, reduce handling of merchandise in no-frill, self-service warehouse facilities. This will enable the company to operate at lower price then their rivals and continually offer members lost cost merchandise.

Moving onto the income statement portion of the common-size financial statements, an increase in cash and equivalents (3.20% of total assets in 1997 to 5.97% in 2001) and receivables (2.69% of total assets in 1997 to 3.22% in 2001) coupled with a decrease in inventory signify Costco’s improving efficiency over this five year period. It is important to mention two points. First, the decrease in inventory as a percentage of total assets from 30.8% in 1997 to 27.14% in 2001 signifies an increase in the turnover rate, perhaps due to

The Gross Margin ratio represents the percent of total sales revenue that TCI retains after incurring the direct costs associated with producing the goods and services sold by them. It helps us distinguish, as much as possible, between fixed and variable costs. With a 20%, 15%, or 10% projected increase in sales, for 1996, we calculated TCI’s GM ratio to be 41.85% , and in 1997 to be 41.84%. This means that around 42% of TCI’s sales dollar is available to pay for fixed costs, like its potential long-term debt to MidBank, and to add to profits.

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

In terms of industry profitability, it appears that profit margins have a tendency to fall. This is because competition is high and customers tend to buy low-priced high-value items. The average gross margin and net profit margin is 37.1% and 14.3%, respectively (MSN Money, 2010).

The industry that Lululemen operates in is the Women`s Apparel industry which is a mature, large and fragmented market that has highly sensitive to the economic conditions and trends.

Costco’s business model focuses on selling limited selection of products at low prices, often at very high volume and rapid inventory turnover. These goods are bulk-packaged and marketed primarily to large families and businesses. Costco does not carry multiple brands or varieties where the item is essentially the same. It provides members with a selection of only about 4000 items, this results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own

Torres’ common-size financial statements also show the changing composition of Costco’s financing structure over time. The fact that interest expense consistently fell over the five year span from -0.35% of net sales in 1997 to -0.09% in 2001 demonstrates Costco’s ability to reduce its overall amount of debt during these years. Exhibit nine’s balance sheet portion supports this reduction, documenting an increase in total current liabilities from 35.86% of total assets in 1997 to 40.76% in 2001 and an increase in accounts payable from 25.46% of assets in 1997 to 27.03% in 2001. This signifies that the company’s debts or obligations due within one year increased, further corresponding with the fact that short-term borrowing increased from 0.46% of assets in 1997 to 1.93% in 2001. With an increase in short-term borrowing it is logical to expect to see a decrease in long-term borrowing. The income statement proves that this is indeed the case, documenting a decrease in long-term debt from 16.74% of sales in 1997 to 8.52% in 2001. This relates back to the decrease in Costco’s interest expense on the income statement, representing the company’s decision to switch to short-term and away from long-term methods. Furthermore, the decrease in long-term debt helped account for a decrease in total liabilities from

Costco Wholesale Corporation (Costco) is a retail membership warehouse chain which was founded by Jim Sinegal and Jeff Brotman in 1983. Headquartered out of Issaquah, Washington, Costco has grown in to one of the largest wholesale giants in the industry. The company’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 (Gamble & Thompson Jr., 2009, p. 217). This