Costco Wholesale Corporation: Mission, Business Model, And Strategy
Costco Wholesale Corporation: Mission, Business Model, and Strategy Costco’s Business Model
Costco’s Business model is to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories (Thompson, 2007).
Costco has to generate high sales volumes because their profit margin is so low. Their sales margin is around 2%, which means they are not creating much profit from their sales. However, since they are selling so much inventory, they are able to generate profit. The rapid inventory turnover is also required to create profits because they are getting the items off their shelves quickly which …show more content…
Low prices are the first key to Costco’s success and this is done in several ways. Costco warehouses are built with no frills. They have concrete floors and are not usually located on prime commercial sites. This helps keep the costs down. Costco members, come for the low prices, not for the ambiance. In addition, Costco has shorter open hours than most stores, which keeps operating costs low. The relationship that Costco has built with many national brand items has allowed them to buy directly from the distributors, which cuts out a portion of costs necessary for them to get it to the warehouse. Since they are able to go through manufacturers directly they are able to pass the savings along to their …show more content…
Since this number is above 1, it shows that Costco is able to keep their inventory moving. Because the ratio is in a 1 to 1 balance it shows that their inventory is moving out the door and they are able to pay for new items to be purchased.
When comparing Costco with two other competitors, Sam’s Club and BJ’s wholesale, looking at 2006 data it shows that Sam’s Club has a higher operating income that Costco with a percentage of 3.6, but BJ’s Warehouse had a lower operating income than Costco with 1.7%. In overall sales however, Costco is beating both Sam’s Club and BJ’s by billions.
From a strategic standpoint describe Costco’s core competencies and produced competitive advantage (if any) over key rivals (Sam’s Club and BJ’s Wholesale).
As stated before, Costco has two internal core principles that help maintain their strategy and allows them to produce a competitive edge over the competition. First, the employees at Costco are valued. This is shown in their hourly wage as well as their benefits package. Costco understands that their employees are their most important asset. Not only are the employees treated well, but the company as a whole has values that set them apart from other companies. They operate with 5 simple principles:
Obey the law
Take care of
Costco’s Business model is to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories (Thompson, 2007).
Costco has to generate high sales volumes because their profit margin is so low. Their sales margin is around 2%, which means they are not creating much profit from their sales. However, since they are selling so much inventory, they are able to generate profit. The rapid inventory turnover is also required to create profits because they are getting the items off their shelves quickly which …show more content…
Low prices are the first key to Costco’s success and this is done in several ways. Costco warehouses are built with no frills. They have concrete floors and are not usually located on prime commercial sites. This helps keep the costs down. Costco members, come for the low prices, not for the ambiance. In addition, Costco has shorter open hours than most stores, which keeps operating costs low. The relationship that Costco has built with many national brand items has allowed them to buy directly from the distributors, which cuts out a portion of costs necessary for them to get it to the warehouse. Since they are able to go through manufacturers directly they are able to pass the savings along to their …show more content…
Since this number is above 1, it shows that Costco is able to keep their inventory moving. Because the ratio is in a 1 to 1 balance it shows that their inventory is moving out the door and they are able to pay for new items to be purchased.
When comparing Costco with two other competitors, Sam’s Club and BJ’s wholesale, looking at 2006 data it shows that Sam’s Club has a higher operating income that Costco with a percentage of 3.6, but BJ’s Warehouse had a lower operating income than Costco with 1.7%. In overall sales however, Costco is beating both Sam’s Club and BJ’s by billions.
From a strategic standpoint describe Costco’s core competencies and produced competitive advantage (if any) over key rivals (Sam’s Club and BJ’s Wholesale).
As stated before, Costco has two internal core principles that help maintain their strategy and allows them to produce a competitive edge over the competition. First, the employees at Costco are valued. This is shown in their hourly wage as well as their benefits package. Costco understands that their employees are their most important asset. Not only are the employees treated well, but the company as a whole has values that set them apart from other companies. They operate with 5 simple principles:
Obey the law
Take care of