Costco Case Study
Seminar: Business Policy and Strategy
Professor Gregory P. Grogan
Costco, a discount warehouse based in Issaquah, Washington, specializes in selling quality products at low prices. The company operates as a membership retailer, focusing its business on small and consumers with incomes averaging $75,000 with over 30 percent having incomes of $100,000 or more annually. The wholesale club segment of retailing in 2008 was estimated to be a $120 billion business in the United States, and it was growing about 20 percent faster than retailing as a whole (Thompson, 2010). The three main competitors were Costco Wholesale, Sam’s Club, and BJ’s Wholesale. Costco has a majority of the warehouse club sales across the United States and Canada and is looking to keep its edge.
The pricing strategy that Costco has implemented, focuses on the price-sensitivity of its consumers. The company has excelled in keeping its prices low by capping the markup on its merchandise. By keeping the markup lower than its competitors, Costco has provided its customers with deep discounts on over 4000 products within its stores. Sam’s Club, which offers the same number of products within its stores, earns half the income that Costco does at each store. Costco sales are even higher per store than BJ’s, which offers 7,300 items compared to 4,000 items at Costco and Sam’s Club. Costco has been very efficient at utilizing its floor space and generating high revenues from it products within its stores. Costco is trying to generate huge sales volume and quick inventory turnover by applying a business model that offers limited selections of nationally branded product in wide range of merchandise categories. Costco apply number of operating excellence such as efficient way of managing inventory and just in time...