Costco Case Study Essay
Costco Wholesale Corp.: Case Study
1. What is Costcoʼs business model? Is the companyʼs business model appealing? Why or why not.
1.1. The companyʼs business model was “to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories.” As a consumer this is a attractive business model because it saves money for the people purchasing while maintaining a strong business and not having to maintain capital.
2. What are the chief elements of Costcoʼs strategy? How good is the strategy?
2.1. The chief elements of Costcoʼs strategy is to offer members low prices of limited selection of nationally …show more content…
branded and selected private label products offered in a wide variety of categories resulting in rapid turnover. Another element of their strategy is to create a self service with proficient distribution system and to reduced man-handling. Both of these strategies are good because they cater to consumers needs, profit the business, help keep a low gross margin, and stay ahead of competitors. 3. Do you think Jim Sinegal is and effective CEO? What grades would you give him in leading the process of crafting and executing Costcoʼs strategy? What support can you offer for these grades?
3.1.
I believe Jim Sinegal is a effective CEO and I believe without him in the company Costco would not be in the positive place they are now in. Sinegal has an objective for the company (rapid turnover) and he takes action to make business run effectively to get results. He has gotten consumers to purchase a wide variety of brands and products at all ranges of prices such as 1 million pumpkin pies during Thanksgiving week in 2007, gasoline sales of 4.6 billion in 2007, and 40 rotisserie chickens in 2008. Without the 232,000 members and growing, Costco would not be the go-to store for last minute and holiday needs resulting in the average bill being $150 per customer. Jim Sinegal also cares about his employees just as much as his customers which is above average for any CEO. He makes visits to Costco stores and is sure to greet all employees and makes them feel as normal as possible and has gone above average standards and offers employees great benefits and a pay wage that goes above other companies. Because of my reasoning I would give him a Abecause there is always room for improvement to become the leader in this retail …show more content…
business.
4. How well is Costco performing from a financial perspective? [ch. 2 fig 2.1]
4.1. From a financial perspective Costco is always rising in numbers. In 2000 the companyʼs revenue was $32,164 where in 2008 it jumped $40,319 to $72,483 and the membership numbers were rising as well as insuring that they will be an even more profitable business in the future. Just by looking at the numbers you can see that they are constantly rising each year with minimal fall back making the company successful with a bright out look.
5. Based on the data in case exhibits 1 and 4, is Costcoʼs financial performance superior to that at Samʼs Club and BJʼs Wholesale?
5.1. Based on the case exhibits, Costco is leading in financial performance with Samʼs Club in second place. Bjʼs Wholesale is not very close behind in numbers seeing as in 2007 their net sales were $8,815 where Samʼs Club was $44,357 and Costco leading with $63,088. Because of these numbers Costco is currently the leader and has a major advantage over these other companies but the company must keep evolving and offering services to differentiate themselves from other retailers to expand their consumer base and continue a profitable business.
6. Does the data in case Exhibit 2 indicate that Costcoʼs expansion outside the U.S. Is financially successful? Why or why not?
6.1. Yes the exhibit shows that Costco expansion outside the US was financially successful because years 2005-2008 the total sales were constantly getting higher and business was growing more profitable throughout time. Once Costco got itʼs name out to consumers and set a positive brand in other countries, customers were more enticed to participate in their business making them a successful international retailer.
7. How well is Costco performing from a strategic perspective? Does Costco enjoy a competitive advantage over Samʼs Club? Over BJʼs Wholesale? If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not?
7.1 Costco is maintaining their competitive advantage by gaining more members each day making them more likely to shop at that store over any other similar business because of the feeling of being a special consumer will special offers they know they can only receive at that store and by having a membership card it ensures customer loyalty. They are also gaining an advantage simply because of their name, Costco has constantly proved their name to be reliable and stable and it is a brand consumers can trust, because of word of mouth, consumer loyalty, and brand recognition, customers are more likely to go to Costco over any other similar store. Costco has a winning strategy because they are offering a wide variety of brands and products that any individual can be satisfied with and they update their brands and styles to keep on top of demand. They are consuming the market and are being profitable at the same time which is definitely a winning strategy
8. Are Costcoʼs prices to low? Why or why not?
8.1 Costcoʼs prices are considered too low in accordance with the profit that could be generated for stockholders.
But the profits could become minimal if they raise their prices and lose their customer base. The biggest attraction for all customers is the huge savings. If they where to reduce that opportunity then they would risk the loss of their huge customer base which they need for a high product turnover that is the foundation of their business model. Therefore the argument of the price being too low is valid but in my opinion they are not too low. The low prices are necessary to maintain the customer
base.
9. Does Costco pay its employees too much? Does it make sense for Costco to compensate its employees so much better at Wal-Mart/Samʼs Club? Why or why not?
9.1 Yes Costco pays their employees too much. They could still maintain quality employees by offering more competitive wages then their competition but offer less than they do now. This could increase the profit margin and therefore help the company keep a competitive edge.
10. What recommendations would you make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the companyʼs growth and improve its financial performance?
10.1 I would recommend to Jim Sinegal to offer a bigger selection of trendy clothing and gift ideas. I believe if these items were offered another group of shoppers would be more enticed to shop at the store bringing in a bigger cliental so numbers grow. I would also recommend to open a few more stores in other areas seeing as there are many Samʼs Clubʼs down the south, Costco is not as well know there and is seen as just another store, if Costco could move to other areas they could take over the area, eliminating competition. Costco already receives a constant variety of new items but a main idea I would recommend is to stay on top of the trends and consumers demands because in the long run thats all that keep the business afloat and losing the handle on this idea could ruin the company.
1. What is Costcoʼs business model? Is the companyʼs business model appealing? Why or why not.
1.1. The companyʼs business model was “to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories.” As a consumer this is a attractive business model because it saves money for the people purchasing while maintaining a strong business and not having to maintain capital.
2. What are the chief elements of Costcoʼs strategy? How good is the strategy?
2.1. The chief elements of Costcoʼs strategy is to offer members low prices of limited selection of nationally …show more content…
branded and selected private label products offered in a wide variety of categories resulting in rapid turnover. Another element of their strategy is to create a self service with proficient distribution system and to reduced man-handling. Both of these strategies are good because they cater to consumers needs, profit the business, help keep a low gross margin, and stay ahead of competitors. 3. Do you think Jim Sinegal is and effective CEO? What grades would you give him in leading the process of crafting and executing Costcoʼs strategy? What support can you offer for these grades?
3.1.
I believe Jim Sinegal is a effective CEO and I believe without him in the company Costco would not be in the positive place they are now in. Sinegal has an objective for the company (rapid turnover) and he takes action to make business run effectively to get results. He has gotten consumers to purchase a wide variety of brands and products at all ranges of prices such as 1 million pumpkin pies during Thanksgiving week in 2007, gasoline sales of 4.6 billion in 2007, and 40 rotisserie chickens in 2008. Without the 232,000 members and growing, Costco would not be the go-to store for last minute and holiday needs resulting in the average bill being $150 per customer. Jim Sinegal also cares about his employees just as much as his customers which is above average for any CEO. He makes visits to Costco stores and is sure to greet all employees and makes them feel as normal as possible and has gone above average standards and offers employees great benefits and a pay wage that goes above other companies. Because of my reasoning I would give him a Abecause there is always room for improvement to become the leader in this retail …show more content…
business.
4. How well is Costco performing from a financial perspective? [ch. 2 fig 2.1]
4.1. From a financial perspective Costco is always rising in numbers. In 2000 the companyʼs revenue was $32,164 where in 2008 it jumped $40,319 to $72,483 and the membership numbers were rising as well as insuring that they will be an even more profitable business in the future. Just by looking at the numbers you can see that they are constantly rising each year with minimal fall back making the company successful with a bright out look.
5. Based on the data in case exhibits 1 and 4, is Costcoʼs financial performance superior to that at Samʼs Club and BJʼs Wholesale?
5.1. Based on the case exhibits, Costco is leading in financial performance with Samʼs Club in second place. Bjʼs Wholesale is not very close behind in numbers seeing as in 2007 their net sales were $8,815 where Samʼs Club was $44,357 and Costco leading with $63,088. Because of these numbers Costco is currently the leader and has a major advantage over these other companies but the company must keep evolving and offering services to differentiate themselves from other retailers to expand their consumer base and continue a profitable business.
6. Does the data in case Exhibit 2 indicate that Costcoʼs expansion outside the U.S. Is financially successful? Why or why not?
6.1. Yes the exhibit shows that Costco expansion outside the US was financially successful because years 2005-2008 the total sales were constantly getting higher and business was growing more profitable throughout time. Once Costco got itʼs name out to consumers and set a positive brand in other countries, customers were more enticed to participate in their business making them a successful international retailer.
7. How well is Costco performing from a strategic perspective? Does Costco enjoy a competitive advantage over Samʼs Club? Over BJʼs Wholesale? If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not?
7.1 Costco is maintaining their competitive advantage by gaining more members each day making them more likely to shop at that store over any other similar business because of the feeling of being a special consumer will special offers they know they can only receive at that store and by having a membership card it ensures customer loyalty. They are also gaining an advantage simply because of their name, Costco has constantly proved their name to be reliable and stable and it is a brand consumers can trust, because of word of mouth, consumer loyalty, and brand recognition, customers are more likely to go to Costco over any other similar store. Costco has a winning strategy because they are offering a wide variety of brands and products that any individual can be satisfied with and they update their brands and styles to keep on top of demand. They are consuming the market and are being profitable at the same time which is definitely a winning strategy
8. Are Costcoʼs prices to low? Why or why not?
8.1 Costcoʼs prices are considered too low in accordance with the profit that could be generated for stockholders.
But the profits could become minimal if they raise their prices and lose their customer base. The biggest attraction for all customers is the huge savings. If they where to reduce that opportunity then they would risk the loss of their huge customer base which they need for a high product turnover that is the foundation of their business model. Therefore the argument of the price being too low is valid but in my opinion they are not too low. The low prices are necessary to maintain the customer
base.
9. Does Costco pay its employees too much? Does it make sense for Costco to compensate its employees so much better at Wal-Mart/Samʼs Club? Why or why not?
9.1 Yes Costco pays their employees too much. They could still maintain quality employees by offering more competitive wages then their competition but offer less than they do now. This could increase the profit margin and therefore help the company keep a competitive edge.
10. What recommendations would you make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the companyʼs growth and improve its financial performance?
10.1 I would recommend to Jim Sinegal to offer a bigger selection of trendy clothing and gift ideas. I believe if these items were offered another group of shoppers would be more enticed to shop at the store bringing in a bigger cliental so numbers grow. I would also recommend to open a few more stores in other areas seeing as there are many Samʼs Clubʼs down the south, Costco is not as well know there and is seen as just another store, if Costco could move to other areas they could take over the area, eliminating competition. Costco already receives a constant variety of new items but a main idea I would recommend is to stay on top of the trends and consumers demands because in the long run thats all that keep the business afloat and losing the handle on this idea could ruin the company.