Costco Case

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Title of Assignment: Costco Case Study

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Executive Summary

Jim Sinegal and Jeff Brotman in Seattle Washington founded Costco Wholesale in 1993. Costco merged with Price Club, and doubled their market share in the wholesale industry. They became an immediate leader in the industry. Costco's sales model is to sell a wide variety of products for low prices at a high volume. These brand-name products are sold at a discounted price to their members. Customers of Costco must pay a membership fee in order to purchase their merchandise. Their focus is on customer satisfaction and a guaranteed low price for its members. They have managed to maintain a large customer base using this balance where both small business and personal needs can be met simultaneous.

Problem Statement

Costco could increase their shareholders return on investment by making changes to their business model. They are currently doing favorably with their customers and employees, but need to maximizing their potential and increase revenue. Costco seeks to increase more of the market share in the industry from Sam's Club, their largest competitor. This can be accomplished by continuing with their growth strategy to open more warehouses, increase their membership, and to upgrading their merchandising techniques to motivate members to shop more often.

Analysis
* Costco currently has 429 warehouses US; 82 warehouses in Canada; and 81 warehouses internationally * They have realized an increase in comparable warehouse sales of 7% in the US and 16% internationally * 14.2% increase in net sales

* Costco currently employs 92,000 full-time employees and 72,000 part-time employees * Members include: Gold star 25,000; business 6,300; business add-on primary4,000; and additional card holders 28,700 * The gross margin has increased by 10.69% as a percent of net sales

Alternatives
* Costco can increase revenue by raising membership fees
* Revenues can also be increased by removing the 15% on product markups * Reducing the number of employees receiving health benefits will increase revenue

Recommendation
The recommendation for Costco is to implement changes in their wages for their employees, benefits packages, and raising membership fees.

Implementation
The recommended changes can be gradually implemented throughout the company. The increase in membership fees would be the easiest to do first. Negotiating new rates for employee benefits will help reduce these costs associated with providing insurance. Costco can pay their employees less to be more competitive with the wages of Sam's Club.

Summary
Costco's current growth strategy is to open warehouses, execute merchandising techniques to increase customer shopping, and to increase their membership. These efforts are an attempt to increase their shareholders return on investment. Costco has focused more on customer satisfaction and pleasing their employees. They have managed to increase their revenues annually without building many stores as Wal-Mart. Costco has 417 US warehouses while Wal-Mart has 3,800. Wal-Mart has been aggressive in pursuing international acquisition by increasing the human spirit South Africa and the UK. Strategy to attract more members relies on the members doing a larger percent of their shopping with Costco. Chief Executive Officer Craig Jelinek has been...
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