Case 2 Questions To Consider For Discussion: Costco: Anish Tamrakar 1

Anish Tamrakar 1
Costco questions
Case 2 questions to consider for discussion: Costco
1. What is Costco’s business model? Is the company’s business model appealing? Why or why
not?
Costco’s main goal is to continually provide customers with quality goods and services at the
lowest possible prices. The company’s business model is to generate high sales volumes and
rapid inventory turnover by offering members very low prices on a limited selection of nationally
branded and select private-label products in a wide range of merchandise categories. The
company’s business model is really appealing because of some of its unique set of practices and
its great management. One of reason for its business success is its high sales volume and rapid
inventory, which helped the company to receive cash for inventory before it had to make a
payment to its vendors. The company generated $71 billion at 544 warehouses in 40 states,
Puerto Rico, Canada, the UK, Taiwan, Japan, Korea and Mexico. Its annual sales per store
averaged $130 million whereas it’s closest competition; Sam’s club averaged $75 million per
store.
2. What are the chief elements of Costco’s strategy? How good is the strategy?
The chief elements of Costco’s strategy are low prices, a limited product line and limited
selection, and a “treasure hunt” shopping environment. The company’s strategy looks appealing
as they stick with the lowering the prices to attract more customers. Similarly the company is
also based on the limited product or product selection as more products means more confusion
for the customer a this technique also helps to create good relationship with its suppliers. Its
strategy contains all the criteria to make Costco one of the successful companies today.
3. Do you think Jim Sinegal is an effective CEO? What grades would you give him in leading
the process of crafting and executing Costco’s strategy? What support can you offer for these
grades? Refer to Figure 2.1 in Chapter 2 in developing your answers.
CEO is the main person of the company who is responsible for the rise or fall in the company.
Jim Sinegal, 71-year-old CEO, is by far one of the best CEO United States has ever seen. He is
a kind of person who would go the store everyday with his nametag among his employee
creating a great working environment, showing everybody that no work is small. Whenever he
has to fly to different place he would fly in his own Costco jet, which is by far the best form of
advertisement. If I was to rate him for his leadership of crafting and executing Costco’s strategy
I would give solid 9 out of 10. He also must be given credit for developing a strategic vision,
setting objectives. crafting a strategy, implementing and executing strategy, monitoring,
evaluating, and making corrective adjustments
Anish Tamrakar 2
4. How well is Costco performing from a financial perspective? Do some number-crunching
using the data in case Exhibit 1 to support your answer. Use the financial ratios presented in
Table 4.1 of Chapter 4 (pages 104-105) to help you diagnose Costco’s financial performance.
Comparing the Costco financial perspective we can clearly see that Costco is doing really good
compare to its competitors. The company annual income has been increasing every year. Its
gross profit margin has remained steady at 10.5, however the company’s current ratio dropped t0
1.09 to 1.07, similarly the debt to equity ratio also dropped to .560 to .556. Last but not least its
inventory turnover increased from 11.6 to 12.6.
5. Based on the data in case Exhibits 1 and 4, is Costco’s financial performance superior to that
at Sam’s Club and BJ’s wholesale?
Based on the data presented on exhibit 1 and 4, we can clearly see that Costco’s financial
performance is way superior to Sam’s Club and BJ’s Wholesale. The annual sale of Costco was
$70,977 million whereas the sales of the Sam’s and BJ’s in year 2008 are $44,457 and $8,815.
Comparing with BJ, its net income is 195 million whereas Costco’s net income is 1,283.
6. Does the data in case Exhibit 2 indicate that Costco’s expansion outside the U.S. is
financially successful? Why or why not?
Based on the data presented on Exhibit 2 we can clearly see that Costco’s expansion outside the
U. S. is successful in my perception as the sales and revenue has grown significantly each year
even though they appear to be smaller than that of US. However the company’s operating
income is the one factor in the data that seemed to have decreased.
7. How well is Costco performing from a strategic perspective? Does Costco enjoy a
competitive advantage over Sam’s Club? Over BJ’s Wholesale? If so, what is the nature of its
competitive advantage? Does Costco have a winning strategy? Why or why not?
Costco has been performing pretty good from their strategic perspective as it has been successful
in obtaining a higher share price in market in compare with its competitors. But when it comes to
competitive advantage Costco clearly had competitive advantage over Sam’s club in terms of
treasure hunt items, as it is one of their own strategies. But it lacks when it compares with the
BJ’s as it is expensive in terms of price with BJ’s. Costco do have the winning strategies because
of its expansion with its profitability.
8. Are Costco’s prices too low? Why or why not?

Comparing to its competitors Costco has a fair price its neither too low or nor high. As we do
know that prices are also one of its strategies. Though their prices are low in compared with BJ’s
increasing the prices would have negative impact on its sales..
9. Does Costco pay its employees too much? Does it make sense for Costco to compensate its
employees so much better than the employees at Wal-Mart/Sam’s Club? Why or why not?
Anish Tamrakar 3
Paying its employee is by far one of its biggest drawbacks as it pays its employee more than its
competitors like Wal-mart or Sams club. Instead of paying more to its employee they should
adopt Wal-mart style of hiring more people instead of cutting the pay of employees. This may be
a good way to cut back on expenses.
10. What recommendations would you make to Jim Sinegal regarding the actions that Costco
management needs to take to sustain the company’s growth and improve its financial
performance?
The main concern of the company is its liability, specially its current liability. They should put
more emphasis on cutting the cost in different sectors like payroll.

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Anish Tamrakar 1

8. Are Costco’s prices too low? Why or why not?

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