Costco Wholesale Corporation operates an international chain of membership warehouses, mainly under the "Costco Wholesale" name, that carry quality, brand name merchandise at substantially lower prices than the merchandise typically found at conventional wholesale or retail sources. The warehouses are designed to help small-to-medium-sized businesses reduce costs in purchasing for resale and for everyday business use. Individual consumers may also purchase for their personal needs.
Costco’s business model depends on high sales volume coupled with quick inventory turnover. Costco operates as a membership warehouse that is based on the concept of offering members the lowest prices on a limited selection of national brands and select private-label products that cover a broad and wide range of categories. This business model is very appealing and appropriate for this type of chain and has many benefits. For one, quicker inventory turnover combined with efficient inventory management systems reduce Costco cost of selling goods. Quick inventory turnover combined with high sales volume allows Costco to sell and receive cash for goods before it has to pay for any of its merchandise, this allows Costco to finance a large percentage of its inventory through the payment terms provided by its vendors rather than having to maintain a sizeable working capital to pay for its merchandise . These saving in its operation enable Costco to pass these saving on to the consumer in the form of low prices. Another reason it’s appealing is because Costco targets high end products thus bringing in high-end consumers into its stores.
Demographics and its product selection could be damaging for Costco. Costco’s main product selection choice is made up of large volume single size packaging such as canned goods, soft drinks are only sold in these large container quantities. This combined with its main demographic of individual members who are more affluent customers in the...
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