The history of Costco
“We are a membership warehouse club, dedicated to bringing our members the best possible prices on quality brand-name merchandise.” Costco Wholesale Corporation is one of biggest wholesale corporations in the United States and several other countries. The story of Costco’s rise from a single Seattle store in 1983 to a multinational chain of enormously profitable warehouses is a tale of perfect leadership in a rapidly-changing retail world. The company’s first location was in 1976 under the name Price Club which was established by Sol Price. Jim Sinegal launched a competing company with an idea of a wholesale business, Costco. The two businesses eventually merged in 1993, and Sinegal went on to educate Sol Price on the art of getting the right product in the right place for the right price. When Costco and Price Club merged in 1993, the operation under the name “PriceCostco” had 206 locations generating $16 billion in annual sales. Since resuming the Costco name in 1997, the company has grown to more than 500 locations worldwide. After opening the first Costco warehouse located in Seattle, WA, U.S.A. Costco became the first company ever to grow from zero to $3 billion in sales in less than six years. Costco’s strategy
There are several factors for Costco to increase its growth under the strategy of the right products in the right place for the right price. The first being the right products, operating with malls becomes an important part of its growth. Costco chairman Jeffrey Brotman forecasts that malls will play a vital role for the company in cities such as Los Angeles. For example, when Costco opened a store at Spotsylvania Mall in Fredericksburg, Virginia, the mall reported double-digit sales gains for a year. Costco placed its wholesale warehouse within a mall setting with other retailers. While shoppers ventured to shop in the mall, they also were able to take advantage of Costco’s unique prices and brands. The second factor is about the right cost and quality of the products. Its operating philosophy is to keep costs down and pass the savings on to its members. A large membership base and tremendous buying power, combine with its never-ending quest for efficiency, result in the best possible prices for its members (Costco). The last factor is the internal environment. Costco pays high wages and compensation to its employees. Richard Galanti, Costco’s executive vice president and chief financial officer, believes the pro-work wages policy makes good business sense: “It’s important to pay people a fair living wage. If you do, and it is better than everybody else, you are going to get better people and they are going to stick around longer.”
THREE PROBLEMS AND SOLUTIONS
Despite all of the good attributes contained by Costco in my view its operating system causes the three critical problems based on the business environment in the company, diversity, and globalization. In this paper I will provide an analysis of circumstances that could upset its systems of management. Problem 1: weakness of HRM
In an organization, the Human Resources Management (HRM) function generally includes a variety of activities, the key function being deciding what are the staffing needs and whether to use independent contractors or hire employees to fill these needs, recruiting and training the best employees, ensuring staff are high performers, dealing with performance issues, and ensuring that personnel and management practices conform to various regulations. The main principle is to meet and attempt to match the needs, interests, and values of an organization and applicant. Unlike this general HRM function, Costco’s idea of hiring new employees is typically not performed by a human resource staff. For example, when a new store opens in a new location, regional and local managers put a tent onsite to take...