Costco Wholesale Corporation Case Study
INTRODUCTION The Industrial Revolution reshaped the world and expedited how business was conducted through the use of railroads and steam engines. Department stores soon evolved after and revolutionized how shopping was done and centralized a variety of merchandise at one central location (Tayan, 2003). With the introduction of 20th century operational management strategies such as Just in Time (JIT) and Lean Manufacturing, companies had to alter its operational efficiency and the way it conducted its business in order to grow and stay competitive. Costco Wholesale Corporation entered the wholesale club industry in the early 1980s (Tayan, 2003). The idea behind a wholesale club was to maximize profits by minimizing operational costs and maximizing inventory turnover ratio. The company experienced tremendous growth from 1997 up to 2001 and has caught the attention of its competitors. Although growth has been phenomenal, the numbers are deceiving because return on assets, return on equity, and asset turnover ratios have declined within the same time frame.
SUMMARY
This paper focuses on how Costco Wholesales Corporation has become more efficient over time and how the company has financed its growth. In order to effectively address the company’s financial status, four questions needs to be answered: How had the company been affected by growth? Had its operational efficiency changed? How had it financed the growth and how had its capital structure evolved? The paper provides insight about the company and uses ratio and SWOT analysis to answer the case questions.
INDUSTRY ANALYSIS
Within the last 150 years, the retail industry has prospered as one the most profitable industries internationally (Tayan, 2003). Although technology may alter how a company conducts its business and consumer experience can significantly affect how well a company performs, the mature yet saturated retail industry continues to grow in line with the United States’ Gross Domestic
SUMMARY
This paper focuses on how Costco Wholesales Corporation has become more efficient over time and how the company has financed its growth. In order to effectively address the company’s financial status, four questions needs to be answered: How had the company been affected by growth? Had its operational efficiency changed? How had it financed the growth and how had its capital structure evolved? The paper provides insight about the company and uses ratio and SWOT analysis to answer the case questions.
INDUSTRY ANALYSIS
Within the last 150 years, the retail industry has prospered as one the most profitable industries internationally (Tayan, 2003). Although technology may alter how a company conducts its business and consumer experience can significantly affect how well a company performs, the mature yet saturated retail industry continues to grow in line with the United States’ Gross Domestic
References: Schmidt, Julie. 2004. Costco wins loyalty with bulky bargains. USA Today. http://www.usatoday.com/money/industries/retail/2004-09-23-costco_x.htm Chen, Hong. 2004. U.S. Retail and Wholesale Inventory Performance from 1981 to 2004. Saunder School of Business, University of British Columbia. http://people.commerce.ubc.ca/phd/owu/academic/CFW_Inventory_RW.pdf Tayan, Brian. 2003. Costco Wholesale Corporation Financial Statement Analysis (A). Stanford Graduate School of Business.