Costco Report 2012

Professor: Wayne Forrester
Class: Business 481
Semester: Fall 2012
Section: E

Company Report: Costco 1. Dameon Jame Background 2. Chandra Willie Mission/Code of Ethics 3. Brian Sanichar Strategy 4. Gopal Mohan Marketing Strategy 5. Anwar Rahman Financials 6. Airon Melo Financials/Competition 7. Sohani Somai Current Status of Costco 8. Kyle Hecter Recommendations

Dameon James Background
Costco Wholesale Club wasn’t always the wholesale club company that generated $71 billion dollars in 2008 as well as having 544 warehouses in 40 states; Like any other company, Costco was a blueprint waiting to dominate the wholesale industry. The Person that came up with the membership warehouse concept was Sol Price. The very 1st price club per say was conducted in San Diego California on Morena boulevard at an airplane hangar in 1976. Sole Price started to experiment with discount retailing called Fed-Mart and that is where future CEO Jim Sinegal got his start as he was employed at the fed-mart loading mattresses earning only an abysmal $1.25 an hour while attending San Diego Community College at the same time. Soon after that, Price decided to sell away fed-mart to focus more on his new empire, which was the San Diego Price Store in which Jim Sinegal tailgated with him to help him build that empire. This proved to be a successful move as within the next few years, the Sol Price club stores rose to the top of the list as the number one leader in member warehouse retailing and the most intriguing thing about this is that it has gained success by mainly operating in the west coast. As Price was figuring ways to maintain success and gain more profit. One of the strategies was realizing that since local small business members needed the products at reasonable prices, Price figured that he can have a surplus in sales as well as gaining buying clout from suppliers by giving a club membership to everyday consumers. This strategy was the one

References: : 1)http://www.hotstocked.com/companies/b/bj-s-wholesale-club-inc-BJ- description-57241.html 2) http://www.marketwatch.com/investing/stock/cost/financials 3) http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-irhome 4) http://www.sec.gov/Archives/edgar/data/1037461/000119312511079572/d10k.htm 5) http://badgerandblade.com/ Kyle Hecter Recommendations Throughout the years, Costco’s method of operation has proven to be second-to-none in the midst of warehouse-club retailer supremacy. BJ’s and Sam’s Club pales in comparison to Costco in terms of revenue, gross margin, net income, Earnings Per Share, etc. The particular strategies used by this company have proven to be successful and became combining factors in their dominance of the wholesale retailer industry. Any situation that Costco sees as an issue, they find a way to counteract it. To keep up with inflation of costs, Costco decided to increase their membership by ten percent (from $50.00 USD to $55.00 USD) in November 2011, as opposed to increasing their selling prices. The five-dollar hike posed as an area of concern for some members, mainly low-income families who nickel-and-dime their money to make ends meet, including penny-pinchers who felt betrayed. Only a slight percentage failed to continue their membership with Costco after their term was over; an impressive 86.4 percent of members renewed their memberships since the price hike. Another strategy that was perceived as an issue was Costco’s form of tenders allowed in the store. When it comes to terms of major credit cards allowed, only American Express is allowed, as opposed to VISA, Discover and MasterCard. Costco has an exclusive contract with American Express in which Costco receives a significantly low merchant/interchange fee. Besides lowering their payment percentage by working with AMEX, they also lower their incident rate of credit card fraud. Although this strategy shuns consumers who want to use a specific credit card, they are able to pay for the merchandise with: Costco Cash Cards, Costco credit cards, Costco cash, cash, checks, debit cards, and recently-included Electronic Benefits Transfer (EBT) cards. Lastly, Costco is located worldwide, as opposed to BJ’s (U.S. only) and Sam’s Club (47 U.S. states, Puerto Rico, Brazil, China and Mexico). They know in the long run that over expansion of their stores (domestically) will cause the existing stores to fall prey to “cannibalization.” Cannibalization refers to the company losing customers from their existing locations to the new store, leading them to focus more on the international territories. Costco’s fourth-quarter 2012 results reveal that they are doing well above what was expected. The statistics for the company exceeded its previous quarter, alongside its previous year outcomes. Multiple financial analysts estimate that Costco’s earnings will increase every year. According to Nasdaq.com, the “Consensus Earnings per Share Forecast” will go from 4.5 to 5.93 between Aug 2013 and Aug 2016. Costco has no intent in reducing the company anytime soon, judging on the increase of stores every year. By the end of fiscal year 2010, they launched a meager 13 stores; by fiscal year 2011, they launched 29 stores; by fiscal year 2012, they plan on launching 25 and they plan on launching 30 new warehouses by the end of fiscal 2013. Costco went from being ranked at number 28 in the Fortune 500 companies in 2011 to number 24 in 2012, showing its ongoing dominance. Despite Co-founder Jim Sinegal stepping down from the CEO position and handing over the reign over to Craig Jelinek (then-president and COO), the profitability continues to move upward. Despite any negative outcome towards the company, they come back to counteract it and continue to be prosperous. With Costco’s ingenuity, consumers’ necessity to buy in bulk for wholesale prices and them being so far ahead of the competition, analysts believe Costco will be a profitable company for years to come.