Costco Case Questions PDF

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1. Some of the chief elements in Costco’s strategy include but are not limited to pricing, product selection, and treasure-hunt merchandising. For pricing they apply, “low cost emphasis”, which provides the lowest cost for their membership customers. By keeping the prices way lower than their competition they attract new membership customers and maintain the ones that already have a subscription. For product selection Costco approximately offers over 3700 items that are priced at bargain levels providing their customers with significant cost savings. These items vary from rotisserie chickens to washer and dryer machines. By offering such a broad range of items to save on there really isn't any excuse not to buy from Costco. A decision was also made that allowed Costco to sell gas at their locations at a massive discount from other oil distributors. Costco also sells many appealing items that may only be available for a limited time which lead me to one of their last chief elements, treasure-hunt merchandising. Treasure-hunt merchandising allows for customers to search around the Costco locations for special deals on items that you might not always see there. These items include HDTV’s, diamond rings, expensive clothing, and even Dom Perignon champagne (all at discounted prices from other retailers). This strategy was to entice shoppers to spend more than they might by offering irresistible deals on big-ticket items. Costco keeps the treasure-hunting items constantly changing so that bargain-hunting shoppers would go to Costco more frequently than just their routine “stock-up” trips. 2. Costco does not enjoy a competitive advantage, usually when they are located in a area there an no Sam’s Club or BJ warehouses near them. If there is one wholesale business in the area, you will rarely see another wholesale store around the corner. When Costco opens a location they are trying to target as many memberships as possible. If there is already a Sam’s Club why would people switch their membership from one wholesaler to another. Costco’s winning strategy is to increase sales at existing stores by 5 percent or more annualizing and to open additional warehouse, both domestically and internationally. 3. I believe that Jim Sinegal was a very effective CEO. I would give him an A in leading the process of crafting and executing Costco’s strategy. From the reading it stated that he had great people skills, which allowed him to build lifelong relationships between customers and employees. His informal dress and unimposing appearance made it for Costco shoppers to mistake him for a store clerk, which made him very approachable. He came across as kind yet stern, but occasionally displayed irritation when he disagreed with what people were saying to him. He was able to communicate his visions clearly which developed the strategic visions, setting objectives and executing the strategy. After the strategy had been executed he usually personally observes the stores which allowed him to understand the daily operations of all employees, and how the customers reacted to the change. He brought Costco from its roots to where it standed before be stepped down as the CEO in September 2011, at the age of 75. Craig Jelinek preformed just as Jim Sinegal would have wanted him to, he executed the Costco strategic plan excellently and took advantage of what Costco was had to offer and made it possible for new stream of revenue to be earned (gasoline pumps). From Figure 2.1 he was able to develop a strategic vision, set objectives which lead into crafting the strategy. Jelinek was then able to execute the strategy. He was especially good at

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monitoring the developments of the strategy and evaluating performance from his employees. Some of the core values and business principles that Jim Sinegal stressed within the company included but are not limited to: ● Take care of our subscription members, they are the sole reason that the company exists ● Take care of our employees, they are one of our most important assets. Communication between employees and higher level members in Costco is crucial to a successful business. ● Respect the suppliers, for Costco to prosper a good relationship between suppliers and buyers is essential to a company to prosper. ● Support the Stockholders, Costco can only be successful as long as the stockholders are feeling that there are benefits within the company so that they will continue to invest. (5) Within North America there are only three massive wholesalers with some other smaller competitors. These three wholesalers include Costco, Sam’s Club, and BJ’s Wholesales. Of the five competitive forces, I believe that rivalry among competitors is the most important. All three of these colossal wholesalers are striving to gain more members with the same focus within the company to offer the lowest possible prices. I believe location has a lot to do with whether or not these big wholesalers will succeed. The more locations you have the more potential subscribers there will be for your company. However, if one wholesaler already has “claimed” that area, there is little that competitors can do to try and persuade customers into their wholesale business. The challenge comes with finding new territory where customers are foreign to such companies so that your wholesale business will succeed with the getting new members. (6) Costco’s financial performance is very good. They have a current ratio of 1.05 that shows it should be able to meet its current liabilities. The assets turnover of 11.54 which hols up with what the case stated that Costco only holds onto inventory for under 12 days. Profits increased by not having to store inventory at other locations by storing inventory over the items that are being sold. The ROE demonstrated $0.13 of profit per dollars of net assets. Based on the information, Costco’s financial performance is superior compared to Sam’s Club and BJ’s Wholesalers. That data in Exhibit 2 indicated that Costco’s expansion outside the US is financially successful. Revenue, warehouse and operating income has steadily increased since the company has gone global. The revenue to warehouse ratio has also increased globally. (7) I really liked the idea of implementing their own store brand named “Kirkland”. I think they should continue to provide more options for Kirkland food which is an even less expensive option for their members. By creating more options for Kirkland they might even be able to expand their brand to other retailers for another source of revenue. The biggest thing I think that Craig Jelinek needs to focus on is opening more stores. With the United States being already pretty conquered by wholesaling companies I believe that Jelinek should focus on opening more location internationally. Specifically locations where wholesaling business are very foreign such as Russia. When I Googled wholesale stores in Russia the only thing that came up was something to with lumber. Russia might

be the next big revenue stream....