Palmers Limited Case Study

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)

The competition between the wholesale club industry is pretty strong but is mostly dominated by the three main competitors which are: Costco, Sam’s club and BJ’s Wholesale club. These three wholesale clubs for the most part dominate the industry and take away customers from other retail stores because they can offer much lower prices, brand name items and a wide variety of items to purchase from them. When it comes to shares of warehouse sales, Costco had roughly 56 percent of sales, Sam’s club had 36 percent and BJ’s wholesale had a low 8 percent. Unlike most retail stores, these three display all of their items on pallets or their inexpensive shelving which provides them with low cost on décor, labor and advertising.

turning over inventory, the company is often able to sell their products and pay suppliers before the invoice is due, even when the company pays early to benefit from early payment discounts. This frees up capital which allows Costco to finance new inventory purchases with supplier payment terms. Costco then passes

Well while I believe that they provide service to the customers and obviously they strive for excellence on the idea of low prices and high sales. I believe the first and most important of their rhetoric they fall short of especially in the respect for their employees.

When it comes to outbound logistics Costco's task is delivery, invoicing, handling finished goods and orders. The way Costco handles all theses various tasks is mostly through assorted distribution and transporting methods. Costco can accomplish their outbound logistics by having a well thought out inventory method. This inventory method lets Costco markets hold up to two full weeks of supplies. Usually the supplies are

Costco’s inventory management strategy focuses on three main points: (a) point-of-sales system (POS), (b) vendor managed inventory and (c) low volume of stock keeping units. Costco takes aid from innovative inventory system that provides real time inventory information called Collaborative Retail Exchange (CRX). The system monitors and re-orders at the optimum inventory as part of the continuous re-order system. The CRX system analyses the sales for the previous weeks and inventory level which acts as information to the suppliers. Costco Wholesale follows a Bulk-buying strategy. It aims at selling products in large volume and comparatively low prices. The company also follows lower number of stock keeping units (SKU’s), an average of ~4,000

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.

The sustainable growth rate is the rate at which a firm can grow while keeping its profitability and financial policies unchanged. The model allows an analyst to isolate drivers that have led to changes in historical growth in order to isolate causes of change. It is represented in four steps.

The model does not say anything about how fast the firm should grow but it gives ideas on how a firm can benefit using this concept:

The US warehouse club and superstore industry includes about 20 companies; however the major competitors that Costco faces are Sam 's Club (owned by Wal-Mart), BJ’s Wholesale Club, and Meijer. The club superstore industry is so competitive that these four companies alone hold over 90 percent of sales. These superstores are able to offer competitive pricing because as large companies they can offer a wide selection of products and have purchasing, distribution, marketing, and financing advantages. Due to low margins, the profitability of these individual superstore companies depends on high volume sales and efficient operations. This is where Costco has been able to succeed and set itself aside from the competitors.

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).

The first of Porter’s Five Forces that impact Costco is the threat of new entrants. The threat of new entrants into the wholesale and membership retail space is low. There are several reasons why the threat of entrants into the market is low. The leading reason why the threat of entry is low is because an emerging company will struggle to have the volume necessary to compete with Costco. Costco is the sixth largest retailer in the U.S. As a major retailer, Costco has the highest discounts on a majority of its

Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company's outside vendors.

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.

It’s a very appealing business model because what it does for Costco is it enables them to secure vendor purchasing power in volume. With their large warehouse facilities this enables them to distribute products on their floors efficiently while being able to store any leftover in house. This increases the availability of turnover. Also, with their large warehouses and lack of design beyond what’s necessity, it enables them to provide customer service without over investing in design.