Case Analysis: Costco Wholesale Case Study

Introduction
Costco Wholesale Corporation is a membership club founded in 1983 and headquartered in
Issaquah, Washington, not far from Seattle. The company deals in a variety of merchandise
including televisions, computers, camcorders and phones.

In addition, the firm provides services such as website and online solutions, mortgage purchase
and financing, business prescription insurance as well as payroll services. The corporation was
formed with a mission of offering quality products as well as services to its members at
achievable economical prices.

Current situation
The company’s competitive advantages are the business strategies, customer approach and the
diversified trade model.

Strategy elements
Low pricing as well as limited selection of products are the foundation of the corporation’s
strategy. Further, Costco’s treasure-hunt merchandising is also an invaluable tactic applied by
the firm in operations. Through treasure-hunt merchandising, the company is capable of
purchasing high-end products and services on the gray economy from the vendors with the
motive of eliminating surplus stocks.

Competitive approach
The company’s price leadership tactic attained through reduced handling and warehouse
expenses, the utilization of just-in-time stocking principle and maintenance of in stock has
proven invaluable in the reduction of prices and increased purchases.

The corporation also maintains preeminent value packs that contribute hugely in attracting
large numbers of customers. The company undertakes minimal promotional activities resulting
in minimal number of expenses incurred.

The business model

The firm currently utilizes business model that focuses on the provision of restricted categories
of trademarked national stock while anticipating high proceeds from vending as well as prompt
stock returns.

In fact, the company’s just-in-time stock, minimal handling of stock, volume purchases as well
as efficient delivery channels has enabled the firm to generate higher revenues from its
operations. Further, the corporation’s treasure-hunt merchandise has created a process that
attracts large number of clients.

Analysis
The macro-environment
Costco Corporation uses PEST analysis in the examination of the macro-environment in which
it operates.

Political aspects
The corporation recognizes the significant roles played by both the political and the legal
sectors in ensuring excellent status, success and trust in its operations. As such, the firm adheres
to business morals as well as the legal provisions provided by the international business
organizations. The company offers goods and services that meet the standards as well as
gratifies the customers’ needs across the globe.

Economic aspects
The company’s repute appeals to large number of clients leading to increased sales.
Additionally, the firm continues to offer superior goods and services to its clients. Further, the
firm has spread remarkably across different states in the globe by opening various businesses
causing an increase in its economic power and competitive position over similar firms in the
industry.

Socio-cultural aspects
Culture influences the performance and productivity of Costco Corporation in a number of
ways. First, the corporation recognizes the worth of its personnel’s ideas and beliefs without
prejudice. The company also satisfies its client social assurance by the provision of high quality
goods and services.

Technological aspects
The utilization of contemporary technology in businesses ensures efficiency and
competitiveness. Costco is at the forefront of utilizing the current progression in expertise to
come up with innovative products that suit the needs of the customers. Further, the company’s
website enables the clients to familiarize with the firm’s products and services.

Key success factors

The company’s business model is instrumental in defining its achievements. The firm
recognizes cultural perspective by seizing opportunities in different locations. In addition, the
firm’s circular vision is instrumental in the reinvention of innovations leading to efficient
delivery of products.
The corporation’s passion has been imperative in the designing of a collaboration-propelled
paradigm enabling innovations of current value models. Moreover, entrepreneurial spirit and
working for a purpose is invaluable in sharing ideas that deliver greater achievements.

Strategic group map

Corporation Business

Model Revenue

(billions) Comparable store sales(decline) Number of store locations Current

strategy

Costco Low costs and high volumes $70 6% 513 International economy

Sam’s Club Low cost and high volume $45 4.5% 490 20 club locations
nationwide

BJ Club Low cost and high volume $10 3.5% 170 Retail shoppers and
provision of more grocery

The company relates with other two competitors including the Sam’s Club and BJ’s wholesale
club. The map exhibits the stiff competition that Costco faces in the market from rivals. Based
on the business model, all the firms apply low cost and high volumes model. In terms of
revenue, Costco leads with $70 billion followed by Sam’s Club $45 billion and BJ”s Club at
$10 billion.

Costco’s sales have declined by 6%, Sam’s by 4.5% and BJ by 3.5%. The firms have diversified
their stores all over the globe with the Sam’s Club leading with the number of stores at 590
followed by Costco’s 513. BJ Club has 170 stores.

The firms are employing a number of current strategies to gain competitive advantage. For
instance, Costco has diversified operations in the global economy while the Sam’s has opened
up 20 new locations nationwide. The BJ’s Club focuses on retail shoppers as well as presenting
volume groceries.

Porter’s five forces

New market entrants

The corporation has a competitive advantage over rivals due to high barriers of entry into the
market, low threats from new firms and diversified products at low-costs.

Competitive rivalry
The company faces stiff competition from other firms such as the Sam’s Club. The firm’s
delivery series is effortlessly duplicated leading to enjoyment of economies of scale. Low-cost
strategies by many firms have resulted into meager proceeds to the firm.

Supplier power
The firm enjoys good working relations with its vendors who supply large quantities of
products at low prices

Purchasing power
The firm enjoys high purchase bargaining power, high concentration and mobility of buyers

Substitutes
There is insignificant pressure of substitute and the customers get towering worth from the
economical purchases as well as elevated membership maintenance.

Internal environment
SWOT analysis

Strengths Weaknesses

Opportunities Threats

Strengths
The firm maintains devoted and rich clients, towering stock proceeds and consistent return on
sales as well as resources together with incredible remunerations policy. All the aspects have
enabled increased revenues.
Weakness
The company diminishing profit levels, weak promotion activities, lack of self-checkouts and
the primary focus on the club’s members opposed to the general customers make Costco less
attractive to many potential customers.

Opportunities
Higher growth prospects are presented to the firm due to operations in high GDP states,
expansion in membership, good repute regarding employee remuneration and societal
responsibility as well as the augmenting trademark among the masses.

Threats
The firm faces stiff competition from competitors such as the Sam’s Club and BJ Club.
Additionally, the firm’s geographical diversification is insignificant compared to the Sam’s
Club.

Financial ratios
Liquidity ratios
The current ratio showed a decreasing trend from 116% in 2010 to 110% in 2012. The quick
ratio and cash ratio were 60% and 47% respectively in 2010 and declined to 52% and 40%
respectively in 2012.

Profitability ratios
Costco’s profitability ratios have remained constant over the years. For example, gross margin
has been at 13%, operating margin at 3% and profit margin at 2%. Return on investments after
tax has been increasing from 12% in 2010 to 14% in 2012.

Value chain
The Costco’s CRX program enables clients to obtain inventory requests in time. In addition,
the program enables the firm to measure performance and productivity against competitors
thereby increases priceless insights in the viable economy.

The system has also provided efficient delivery series solution to the clients through updating
stock information, forecasting and demand planning leading to enhanced business operations
and reduction in costs.

Key strategic issues

The critical tactical aspects of Costco encompass low prices, limited product lines and selection
as well as treasure-hunt shopping experience. In fact, the firm strives to offer quality goods and
services to its members at economical costs achievable. The company operates a limited
number of products approximated to be 4,000 through volume buying, effective delivery
procedures and abridged inventory managing.