Costco Wholesale 2008

Topics: Costco, BJ's Wholesale Club, Sam's Club Pages: 7 (2769 words) Published: October 25, 2012
Assignments Questions Costco.
1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? 2. What are the chief elements of Costco’s strategy? How good is the strategy? 3. Do you think Jim Sinegal is an effective CEO? What grades would you give him in leading the process of crafting and executing Costco’s strategy? What support can you offer for these grades? 4. How well is Costco performing from a financial perspective? Do some number-crunching using the data in case Exhibit 1 to support your answer. Try to use some financial ratios presented to help you diagnose Costco’s financial performance. 5. Based on the data in case Exhibits 1 and 3, is Costco’s financial performance superior to that at Sam’s Club and BJ’s Wholesale? 6. Does the data in case Exhibit 2 indicate that Costco’s expansion outside the U.S. is financially successful? Why or why not? 7. How well is Costco performing from a strategic perspective? Does Costco enjoy a competitive advantage over Sam’s Club? Over BJ’s Wholesale? If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not? 8. Are Costco’s prices too low? Why or why not?

9. Does Costco pay its employees too much? Does it make sense for Costco to compensate its employees so much better than the employees at Wal-Mart/Sam’s Club? Why or why not? 10. What recommendations would you make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the company’s growth and improve its financial performance?

Costco Wholesale in 2008: Mission Business, Model, and Strategy Question 1: What is Costco's business model? Is the company's business model appealing? Why or why not? The official Costco' mission statement is "To continually provide our member with quality goods and service at the lowest possible prices". This statement shows us what drives Costco and their long-term goal is. They want to sell high quality goods and services to their customers, along with the lowest price of the market. Thus it is easy to understand what why the company strategy is how it is: to generate high sales volumes and rapid inventory turnover by offering member very low prices on limited selection of national brand and select private-label product in wide range of merchandise category". As a wholesale company, Costco purchase large amount of product from manufacturer. It has the ability then to obtain large and deep discount from supplier, in the same way as Wal-Mart does. This strategy give to the Washington-based company a high purchasing power compare to retailer. By generating high sales volumes and rapid inventory, Costco receive payment from customers before supplier's payment are due. Here again, this gives to the company another way to get more discount, and pass this saving on to customers by lowering price. Moreover, the risk of obsolescence, one of the most financial issues with huge inventory, is decrease. Storage cost is in this case very low, because products move quickly in and out of the store. This model does not need high working capital, because the money flows 24/7. High liquidity value, and (almost) no need of additional loan. Thus, we have a company able to obtain deep discount and then get low prices for its customer, while still able to offer national brand and select private-label. All together, this looks really appealing. Customers get best price of the market and brand recognition at the same time. Business and Families come easily to shop at Costco Question 2: What are the chief elements of Costco's strategy? How good is the strategy? The three key components of Costco's strategy are a low pricing, a limited product line and limited selection, and a "treasure hunt" shopping department. The low pricing strategy consists of capping the markup at 14 percent for brand-name. While it is around twenty to fifty percent at others big...
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