Costco - case study PDF

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1) Costco is in the wholesale market. Their primary form of revenue comes from their membership cards and they often mark items they sell under their cost of the goods. This makes them competitive and attractive and causes people to frequent their locations even if they are not interested in their products. Their company has such attractive prices that even though they lose money on some items they are still able to stay black in their profits. 2) There are other prominent wholesalers that Costco has to compete with, but because they are not structured the same and do not offer the same high quality goods that Costco is known for they do not take their loyal customer base away. Their most competitive forces would be their suppliers. If their suppliers do not qualify with the best standards, or raise the prices for their own gain it would cause Costco not making money but to lose even more. When the margins are as small or even negative having suppliers raise their initial price will end up hurting costco in the long run. 3) Costco’s go to market strategy is an overall low cost strategy. While customers would expect there to be a loss in quality due to the low cost, Costco is able to bring in some of the highest quality brands on the market for prices that cause customers to purchase their goods just for the deal they are offering. Their biggest drivers are the simplicity of the store paired with the 15% markup. This ensures that all products bought cannot be sold anywhere else for a better price. 4) I think that Jim Sinegal was a perfect CEO that would be rated a 10/10. The fact that he did not pay himself very much, he always went to the workers of the store to meet them and he always appeared to be just a normal average person to the rest of the company. Those who dwell too long in their success tend to put their own personal gains over the success of their company and this tends to hurt their bottom line. Craig Jelinek was a very good person to take over since he worked his way up from the bottom. He was able to find even more ways to expand Costco's inventory, warehouses and revenues in areas that were not previously known. 5) Costco has a 2.15% net profit, 25.18% return on equity, .99 current ratio and CAGR of 9%. What is surprising is that costco's profits are incredibly slim. They have a very large net sales that is growing each year, but their net income from their sales are much smaller than that of a normal company of their size or even less. As slim as their margins are,

they are able to stay profitable because of their membership fees. If Costco were to not have a membership fee then they would most likely not be able to have a positive growth, positive CAGR and would not be in business for much longer. If they were to raise their wholesale markup they would not need to have a membership fee but that would also not be as attractive as the prices that they have right now. They are in a very good and healthy spot as they are. Deviations in cost can hurt their bottom line but because they have such a control over their products they are able to always stay ahead of the curve and maintain a level of financial loyalty that keeps driving customers back to shop. 6) I do not think the prices are too low. They offer a subscription service that you need to pay for in order to shop at a place that offers wholesale value. They are so attractive to so many customers because of their prices. They have incredible customer loyalty because of how well they take care of their customers and always offer them the best prices and the best quality. 7) I think that Costco has a great reputation because of the people that work there and the passion they bring to their stores. People who sell high end luxury goods for bargains should not be making a low amount of profits each year. I am surprised by how much the workers make in comparison to their gross margin and how small their profit on their goods are. But knowing how much they bring in on their membership cards and access helps even out the amount the worker makes and how much company ends up making as a whole....