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    Cosco Case Study

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    Vailamtah Ministry
    Costco's business model focuses on generating high sales volumes through low prices on a limited selection of branded and private label products. They rely on annual customer memberships for revenue. Costco provides members with bargain prices on approximately 3,700 regularly stocked items and uses their Kirkland private label brand. The company emphasizes low operating costs and expanding store locations globally. Costco has experienced strong financial performance in recent years with increasing revenues, income, and store counts. Their strategy of low prices, limited selection, and frequent treasure hunt items has allowed them to gain over half of the warehouse club market share in North America.

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    Cosco Case Study

    Uploaded by

    Vailamtah Ministry
    236 views4 pages
    Costco's business model focuses on generating high sales volumes through low prices on a limited selection of branded and private label products. They rely on annual customer memberships for revenue. Costco provides members with bargain prices on approximately 3,700 regularly stocked items and uses their Kirkland private label brand. The company emphasizes low operating costs and expanding store locations globally. Costco has experienced strong financial performance in recent years with increasing revenues, income, and store counts. Their strategy of low prices, limited selection, and frequent treasure hunt items has allowed them to gain over half of the warehouse club market share in North America.

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    Costco's business model focuses on generating high sales volumes through low prices on a limited selection of branded and private label products. They rely on annual customer memberships for revenue. Costco provides members with bargain prices on approximately 3,700 regularly stocked items and uses their Kirkland private label brand. The company emphasizes low operating costs and expanding store locations globally. Costco has experienced strong financial performance in recent years with increasing revenues, income, and store counts. Their strategy of low prices, limited selection, and frequent treasure hunt items has allowed them to gain over half of the warehouse club market share in North America.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    236 views4 pages

    Cosco Case Study

    Uploaded by

    Vailamtah Ministry
    Costco's business model focuses on generating high sales volumes through low prices on a limited selection of branded and private label products. They rely on annual customer memberships for revenue. Costco provides members with bargain prices on approximately 3,700 regularly stocked items and uses their Kirkland private label brand. The company emphasizes low operating costs and expanding store locations globally. Costco has experienced strong financial performance in recent years with increasing revenues, income, and store counts. Their strategy of low prices, limited selection, and frequent treasure hunt items has allowed them to gain over half of the warehouse club market share in North America.

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    © All Rights Reserved
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    of 4

    COSTCO CASE STUDY

    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. Costco’s business model is built upon customer

    memberships, who join and renew annually. This directly shows customer loyalty as satisfied

    customers will renew annually. Costco’s business model is great, all customers want to find good

    quality bargains and Costco is setup to keep their customers coming back to find them. Costco’s

    strategy is built on the principle strategy of low prices, limited selection, and a treasure-hunt

    shopping environment, strong emphasis on law operating costs, and ongoing expansion of its

    geographic network of store location. Costco merchandising strategy was to provide members

    with a selection of approximately 3,700 active items that could be priced at bargain levels and

    thus provide members with significant cost saving. Costco uses their brand Kirkland, which is

    designed to be equal or better quality than national brands. Costco’s buyers purchase these items

    from wholesalers which enables them to offer discounts to their customers.

    I believe that Jim Sinegal is an effective CEO as he leads Costco into strategic courses in

    preparing for the future. He was a very much the person-in-charge. He functions as a producer,

    director and knowledgeable critic. Sinegal exhibits attention to detail and pricing and leads a

    very active role in management as CEO. From the surface level perspective of Costco’s financial

    statements, their financial performance is strong and continuously improving. Year after year,

    Costco has expanded its operations successfully and have recently met record highs in total

    revenues ($88.9 billion in 2011) and net income ($1.46 billion). With the exception of decreased

    performance from 2008 to 2009, all of Costco’s performance has increased across the board for
    the last ten years. Costco’s sales increased by over $10 million from 2010 to 2011 and their net

    income increased by almost 11%.

    Exhibit 2 merely segregates the total sales into five categories. The dollar amounts,

    necessary for benchmarking, are not provided. Exhibit 2 continued and does show an upward

    trending increase in warehouse locations from 2007 – 2011. One could infer that unit expansion

    is a result of increased revenues. However, the exhibit does not segregate locations by

    geographic region, which is necessary for accurately benchmarking the geographic expansion,

    i.e., international expansion. Regarding the financial soundness of international expansion

    outside of the U.S., we must refer to exhibit 4 which includes actual dollar amounts. The above

    numbers were manually put into Excel in order to create a few graphs to correctly understand the

    trends associated with international expansion compared to U.S. expansion. In conclusion,

    because of Costco’s upward sloping operating income and operating margin per unit experienced

    internationally from 2005-2011, the international expansion has been a successful financial

    decision for the company.

    Costco is performing extremely well from a strategic perspective. As discussed in detail

    in the response to Question 2, Costco’s strategy is to provide ultra-low prices, a limited selection

    of nationally branded and private-label products, a “treasure hunt” shopping environment, strong

    emphasis on low operating costs, and geographic expansion. The wholesale club and warehouse

    segment of retailing in North America in 2011 consisted of three main competitors - Costco

    Wholesale, Sam’s Club, and BJ’s Wholesale Club. At this time, Costco had just over a 57%

    share of warehouse club sales across the United States and Canada, Sam’s Club had 35%, and

    BJ’s Wholesale had 8%. Competition among these competitors is based on factors such as price,

    merchandise quality and selection, location, and member service.


    Costco enjoys a competitive advantage over Sam’s Club in terms of their product

    offerings, which are narrower. Although both companies tend to offer the same types of

    products, Costco offers 3,600 items whereas Sam’s Club offers 4,000 items. Although the

    difference in quantity between the two doesn’t seem large, Costco has shown that with the right

    planning and management, having a narrower product offering can lead to more than one

    advantage. Costco deliberately limits each product category to fast-selling models, sizes, and

    colors, which means they usually offer only one or two brands or sizes per item which essentially

    makes the decision for the member as to what they will by. This leads to efficiency in

    management because there are fewer products to inventory, and it also leads to increased sales

    because customers are more likely to go ahead and buy a product even if it is not the brand they

    were wanting, or the product is being sold in a larger quantity than what they were wanting.

    Costco is also able to create a competitive advantage over Sam’s Club with their treasure-hunt

    items. Treasure-hunt items are high-end or brand-name product offerings that carry big price tags

    offered at a low price.

    Costco’s strategy is to entice shoppers to spend more than they might by offering

    irresistible deals on big-ticket items or name-brand specials and, further, to keep the mix of

    featured and treasure-hunt items constantly changing so that bargain-hunting shoppers would go

    to Costco more frequently than for periodic “stock up” trips. This will draw members to the store

    more often with the item of leading to more frequent purchases. The treasure-hunt items at Sam’s

    Club tend to be less upscale and carry lower price tags than those at Costco, which is not always

    a positive representation of value that customers are looking for.


    Costco has a winning strategy that is carefully made up of five sub-strategies that allow

    them to touch on all market opportunities. Costco has found a way to successfully implement

    each of the five sub-strategies that each attribute to their overall goal of generating high sales

    volume and rapid inventory turnover. Because Costco’s sub-strategies align and have been

    successfully implemented, they are able to win in their industry.

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