Costco Wholesale Corp.: Mission, Business Model, and Strategy
1. What is Costco’s business model? Is the company’s business model appealing?
Costco’s business model depends on high sales volume along with quick inventory turnover, which is made possible by low prices and limited product selection. This business model is appealing for them and has many benefits. Firstly, by setting up the business approach to rapidly turning over inventory, the company is often able to sell their products and pay suppliers before the invoice is due, even when the company pays early to benefit from early payment discounts. This frees up capital which allows Costco to finance new inventory purchases with supplier payment terms. Costco then passes these savings on to consumers in the form of low prices. Another benefit of this model is that Costco is not required to maintain high levels of working capital or take out loans, with interest to pay suppliers.
2. What are the chief elements of Costco’s strategy and core values? The 3 components of Costco’s strategy are low pricing, limited product selection and what the company calls “treasure-hunt merchandising”, or high-end products acquired legally on the gray market from other wholesalers or retailers looking to get rid of excess or slow selling inventory. While Costco strives to beat the competition’s pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. Costco also utilizes a competitive strategy which is to be the best-cost provider in the wholesale club category. This strategy is aligned with Costco’s abilities and resources, i.e., a streamlined supply chain, purchasing power, good supplier relationships, high sales volumes, quick inventory turnover, and excellent customer service.
3. Do you think Jim Sinegal is an effective CEO?
Sinegal is an effective CEO as shown by his goals to keep Costco as the number one wholesaler through his...
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