Costco Strategy
Costco Wholesale Corporation entered the wholesale club industry in the early 1980s. 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. Costco Wholesale is one of the largest retailer stores in the market. The company has differentiated and positioned itself well in the market through its mission statement. The company’s mission statement well understood throughout the firm.
Business Model
Costco’s business model relies on high sales volume doubled with quick inventory turnover, made possible by low prices and limited product selection among a wide variety of branded and private label this chain and has many benefits. For one, by gearing the business approach to rapidly turning over inventory, the company is often able to sell new merchandise and pay suppliers before the invoice is due, even when the company pays early to benefit from early payment discounts. This frees up capital, as Costco finances most new inventory purchases with supplier payment terms. Fittingly, the company passes these savings on to consumers in the form of low prices. Another benefit of this model is that the company is not required to maintain high levels of working capital or take out loans, with interest to pay suppliers. Management believed that rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution, and reduced handling of merchandise in no-frills, self-service warehouse facilities, enabled the company to operate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercenters. * Yes, this model is appealing for the following reasons: * Allows the company to sell and receive cash for inventory before it had to pay many of its merchandise vendors *
Business Model
Costco’s business model relies on high sales volume doubled with quick inventory turnover, made possible by low prices and limited product selection among a wide variety of branded and private label this chain and has many benefits. For one, by gearing the business approach to rapidly turning over inventory, the company is often able to sell new merchandise and pay suppliers before the invoice is due, even when the company pays early to benefit from early payment discounts. This frees up capital, as Costco finances most new inventory purchases with supplier payment terms. Fittingly, the company passes these savings on to consumers in the form of low prices. Another benefit of this model is that the company is not required to maintain high levels of working capital or take out loans, with interest to pay suppliers. Management believed that rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution, and reduced handling of merchandise in no-frills, self-service warehouse facilities, enabled the company to operate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercenters. * Yes, this model is appealing for the following reasons: * Allows the company to sell and receive cash for inventory before it had to pay many of its merchandise vendors *
References: Thompson, A. A. (2010). Strategy: Core concepts and analytical approaches. New York, NY: McGraw-Hill. Retrieved from http://www.glo-bus.com