Costco Case - NOTES PDF

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Costco Case GBA 490 Elizabeth Iniguez Assignment Questions: 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco’s business model to offer members with low prices on a large selection of products in order to generate a rapid inventory turnover and high sales. Costco business model has established customer loyalty by the wide variety of products at a great cost. With the discounts offered it has been able to attract more costumers who are looking into an affordable and exclusive shopping experience. Compared to most department stores, Costco requires new members a membership monthly to shop at Costco. The business model is working effectively for the business and the membership members. 2. What are the chief elements of Costco’s strategy? How good is the strategy? The chief elements of Costco’s strategy is to provide low cost to its members, limited selection and product line, and treasure hunt shopping environment. The strategy is effective for Costco because members are looking for low cost and a limited selection and product, members know what they will get or look forward to buying. If there is a wide variety of products and large product line consumers are more confused of what to buy and it can sometimes be stressful. The low limited selection and product line has helped Costco establish a better relationship with their suppliers. 3. What core values or business principles did Jim Sinegal stress at Costco? Jim Sinegal stressed on five operational principals for Costco to improve moral business practice and stakeholder’s relationships. For Sinegal it was important to establish a great relationship with stakeholder in order for them to feel they are benefiting the company. Sinegal core values was to protect the employees and members of Costco. The business principal Sinegal stresses at Costco is to be compliance with the law in the operation of the business. 4. What is competition like in the North American wholesale club industry? Which of the five competitive forces is strongest and why? Use the information in Figures 3.4, 3.5, 3.6, 3.7, and 3.8 (and the related discussions) in Chapter 3 to do a complete fiveforces analysis of competition in the North American wholesale club industry. The competition for North America wholesale club industry top competition is Sam’s Club and BJs Wholesale. Five Competitive Forces: 1. Buying power from customer: The prices are low price, and they receive the product at a higher volume.

2. Buying power from suppliers: this includes having well-known products that are attracted to costumers. If certain products are not offered that lead to a decline in sales from buyers. 3. Threat of Substitution: the service offered is only limited for the industry. 4. Barriers to entry: Costco, Sam’s Club, and BJs Wholesale have the advantage in the industry because of the size and they accomplished economies of scale. 5. Rivalry among competitors: Sam’s Club is one of Costco’s major competitor. With their strategy being closely to Costco this is a threat.

5. How well is Costco performing from a financial perspective? Do some numbercrunching using the data in case Exhibit 1 to support your answer. Use the financial ratios presented in Table 4.1 of Chapter 4 (pages 85-87) to help you diagnose Costco’s financial performance. Overall, Costco is performing well financially in the industry. The average growth rate is 7.9% where their income has rose from $631 million to $1.46 billion in 2011. The financial performance for Costco is an increase in growth for the company. 6. 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? From a strategic perspective Costco is not doing too well with its competitors Sam’s club but it is outperforming BJ’s wholesale. With BJ’s wholesale carrying to many products, it is easier for Costco to achieve a higher turnover rate. Sam’s club has a closely strategy to Costco, where Costco truly has to achieve that the buyers and employees are happy. Costco does have a winning strategy because they ensure the products, they are offering are limited but provide with what costumers need, they compensate their employees well, and they sell a big volume of inventory.

7. What do you think of Costco’s compensation practices? Does it surprise you that Costco employees apparently are rather well-compensated? Costco’s compensation practices are working effectively and are at higher rates than its competitors Sam’s Club and BJs Wholesale. Costco provides its employees with health and dental care plans, vision program, 401(k) plan contributes 50 cents on the dollar contributed, employee stock purchase, professional counseling service, and many more services to its employees. For Jim it is important to compensate their employees in order to successfully execute Costco’s business strategy. Jim has succussed provided low cost to its but compensating their employees to achieve the highest productivity in the company....