COSTCO WHOLESALE CORPORATION

Costco Wholesale Corporation

Costco Wholesale Corporation

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.

Costco Wholesale Corporation business

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. This paper focuses on how Costco Wholesales Corporation has become more efficient over time and how the company has financed its growth. The paper provides insight about the company and uses ratio and SWOT analysis to answer the case questions.

Economic philosophy : Quality, Company Image And Self-Concept

Costco's business model

Costco'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. Costco's business model is built upon customer memberships, who join and renew annually. This directly monetizes customer loyalty as unsatisfied members may not renew and represents a real cost to Costco's business. Its business model is fantastic, all customers want to find great bargains and Costco is setup to keep the customer coming back to find them (Kristen, 2004).

Chief Elements of Costco's Strategy

The cornerstone of Costco's strategy was low prices, limited selection, and a treasure-hunt shopping environment. Chief elements of Costco's strategy were low prices, limited selection, and a treasure-hunt shopping environment. The ultra-low pricing strategy includes a mark-up capped at 14% and Kirkland, a Costco brand designed to be of equal or better quality than national brands(Jobber, 2001). Product Selection is limited to 4,000 items within a wide variety of categories. Costco does however include ancillary businesses to increase member alternatives. The loss of sales from customers who refuse to purchase large amounts is considered “Intelligent loss of sales.” Treasure-Hunt Merchandising consists of a constantly changing selection of 1,000 luxury items on the floor enticing shoppers to spend more than they might otherwise by offering irresistible deals. To make Treasure-Hunt shopping profitable, Costco's buyers purchase these items from the grey market such as wholesalers, or distressed retailers rather than manufacturers(Hirji, 1999).

Effective CEO

Jim Sinegal is an effective CEO. He brings an effective plan to the table, given the company's strategic course in preparing for the future. Sinegal was very much the person in ...