Costco case Analysis Essay

1. What is Costcos melodic phrase model? Is the telephoners business model appealing? Why or wherefore not?Costcos business model is focused on producing naughty sales tidy sums and rapid inventory turnover by tolerateing members let out prices on a limited containion of national name brands and take on private-label overlaps in a wide range variety. Costco is focused in affordable outline is concentrated on a narrow buy discussion section and out competing rivals by having visit costs, thitherfore existence able execute a niche consumers at a slumper price. (Gamble, John and Thompson, Arthur (2009). Costcos business model is appealing because they be able to continually carry on to a niche market. This niche market has annual in cut which ranges from $75,000 to $100,000 or much a year. By poke outing the best products possible at down in the mouther price, they argon able to have these members unsay. Presently there atomic number 18 47,679,000 vizor holde rs which entangle Executive members, Business member, Primary cardholders and Add-on cardholders. Whereas Costco has offered the most pop products in order to have a rapid turn-over. Costco has proven that there business dodging has worked by continually producing higher net sale.2. What are the chief elements of Costcos scheme? How heartfelt is the strategy?Strategy is the placements pre selected that means to achieve its goals or objectives, while keeping in view current and future external conditions. Costcos strategys elements are get-go prices, limited product lines and excerpt and treasure prevail obtain environment. Costcos is following cost leadership strategy which is good because on this tush they can compete with their competitors. By limited product lines and limited selection they are offering limited 4000 items which are slight as compared to its competitors. Costcos is adopted market development strategy by capturing current markets for existing products. Also it provides much(prenominal) product at low prices to its members which they believe pull up stakes not be functional in attached visit. This works as an incentive and members try to take maximum good and therefore Costcos sales volume increases. At Costcos pedigree products are not offered in every size. The strategy they followed is that by offering every size their efficiency will decrease therefore it is say intelligent loss of sales.3. Do you think Jim Sinegal has been an effective CEO? What grades would you outpouring him in leading the process of crafting and executing Costcos strategy? What keep can you offer forthese grades?Refer to figure 2.1 in Chapter in growth your answers. Jim Sinegal is an effective CEO after gone through the case study. in that respect are various reasons which show that Mr. Jim Sinegal was responsible to lead the elbow room of strategy effectively. First, Jim Sinegal had made a transparent and well defined planned path for the Cos tco to follow. He was the only person in the guild for the preparation of business model and appreciated over the growth of the strategy of the company. He had love how skills and created an environment to offer treasure hunt in the storages and importanttain low prices and helps in promoting large volume of store traffic that helped in edifice quick turnover of inventory.He was responsible for driving the ability of the company to achieve yearly sales nearly to $130 million per store. accord to the case study Sinegal had performed excellent job in the execution of the strategy process at Costco. He performed three functions in the company as producer, knowledgeable critic and director. He went to stores for investigation for checking out the performance of store managers and asked various questions from them, about the performance of stores and told them to do much work on their weak areas. In this case, when Sinegal found answers to his questions less than expected than he told store managers to do more research and come back with sufficient information.4. What center values or business principle has Jim Sinegal stressed at Costco?The briny business principle activity of Costco is to provide high value to users by offering global and local tag products at low prices, excessively it integrates its employees in a very nicely way. Jim Sinegal wanted to say that these dickens principal activities reflected in working environment of Costco which makes them earnable throughout the earthly concern as compared to late(prenominal) conventional wholesalers and productrs.5. (in the event you have covered Chapter 3) What is ambition like in the North America wholesale club perseverance? Which of the basketball team competitive forces is satisfyingest and wherefore?Use the information in Figures 3.4, 3.5, 3.6, 3.7, and 3.8 (and the relate discussions in Chapter 3) to do a complete five-forces analysis of competition in the North American wholesale club industry. The wholesale club industry has evolved into a common oligopoly just as other study industries have. The salient three of this industry are Costco, Sams bludgeon, and BJs. A five forces analysis will be examined in regards to the wholesale club industry. blackmail one, barriers to entry the three companiesare at an usefulness because of the difficulty of modernistic firms entering the industry. They accomplish economies of scale and scope referable to the size and volume of their sales by buying and selling more goods on a larger scale with lower costs. It would take a considerable nub of time for a bracing entrant to achieve the benefits of economies of scale. The capital requirements are large due to the construction of buildings and acquisition of land and licenses.Only companies with an formal distribution network would have a fair chance of entering the industry. Force two, the threat of substitutes, is not a particularor because the service they offe r is not offered by other outside competitors. Force three, the bargaining spring of buyers, is the strongest force working in the favor of the industry. This is so because buyers cannot negotiate the price. The main reason customers come to wholesale clubs is they are attracted by the already low prices and value of buying in bulk. Force four, the bargaining power of suppliers could come into play if a more favorable opportunity lays itself in the world-wide retail industry. Wholesale clubs offer only a percentage of the products that a general retailer does. A let on strategy of Costco is aimed squarely at selling blanket-quality production at prices agreeablely below what other wholesalers or retailers charge. Force fifth, rivalry among existing players, is not a major(ip) factor.Costco, the passaway leader presently, offers the treasure hunt deals where extreme bargains are offered for short, unannounced periods of time. This creates buzz amongst customers by enticing th em to return on a consistent basis to explore what treasures are available. BJs sets itself apart by being the only club among the three to accept manufacturers coupons. They in addition are the only club to accept all four major credit cards, MasterCard, Visa, Discover, and American Express, at all locations. They also offer a broader assortment of items as compared to Sams and Costco.6. Base on the selective information in case Exhibits 1 and 4, is Costcos financial performance quality to that at Sams gild and BJs wholesale?7. Does the data in case Exhibit Exhibit 2 indicate that Costcos expansion outside the U.S. is financially successful? Why or why not?8. How well is Costco performing from a strategic perspective? Does Costco racket a competitive advantage over Sams Club? Over BJS Whole sale? If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not?Costco has been playing very successful in the wholesaling industry as it c an be seen from its business strategies. First of all, for the purpose of supporting the Costcos business model of generating high sales volumes and rapid inventory turnover, Costco members are given a limited selection of nationally branded and select private label products in a wide range of merchandise categories. Then Costco combine its rapid inventory turnover with the operating efficiencies to run the business profitably at significant lower gross margins than traditional wholesales, mass merchandisers, supermarkets and supercenters. As a result, Costco takes advantages of its high sales volume and rapid inventory turnover to obtain the benefits of early passment discounts from merchandise vendors due to the high sales volume and rapid inventory turnover impart Costco to generate enough cash in account.Secondly, the pricing strategy of Costco is key factors to support the low price business strategy which is to cap the margins on branded name merchandise at 14 percent so tha t its members can buy with low price. Thirdly, Costco focus to offer limited selection that is about 4000 items with fast selling models, sizes and colors, and target the small businesses for its commercial and victor models selling. Furthermore, advertising and sales campaigns are not being used much by Costco for the marketing strategy and the company only launches campaigns for rising store applyings. In addition, Costco also use direct mail to prospective new members occasionally and direct mail programs promoting selected merchandise to members regularly.Opening more new warehouses, building an ever larger and fiercely loyal membership base and employing well executed merchandising techniques to encourage members to shopping more a great deal with big trip are the main central growth strategy of Costco. Moreover, online shopping is another alternative that Costco offered to members so as to make their shopping more convenient rather than switch to competitors. In additio n, Majority of merchandise is owned by Costco, and the company also builds direct buying relationships with many producers of national brand name merchandise and manufacturers and this result in the available of flexible alternatives of suppliers for Costco in anytime tohave sufficient of stocked merchandise.Also, Costcos membership base and member demographics contains powerful buying ability as it mainly target the individual customers with minimum income of $75000 and 30 percent of the targeted customers earn more than $100000 annually. For the purpose of executing Costcos strategy successfully, the company offer biannual bonuses and full spectrum of benefits for its employees. More important, the promoting opportunities will consider the insiders first ground on the company policy. Other factors that de endpointine the success of Costco also include the business philosophy, values and code of ethics such as chase the law and governmental regulations, take of members, take of employees, respect suppliers and business partners, and honour the shareholders. Costco is beating both Sams Club and BJs wholesale in net sales and market share. However, Sams Club has launched an aggressive campaign to increase its market share.9. Are Costcos prices in like manner low? Why or why not?Yes, because the gross profit margin falls into the normal range for this industry. However, it should be trending upward and as you can see it is actually decreasing moderately. If this trend continues, steps will need to be taken to correct the problem. Another probability indicator, return on stockholder equity indicates that the company has a problem. Average returns are around 12%, which Costco was nearing in 2004 and 2005. In2006, the company experienced a snappy decline which is causing for concern. Investigate this decline. It could be due to low salary after taxes. If the pricing is too low, this can happen. Currently, Sinegal, admittedly, tries to sell products at the last price possible for longevity.However, if the investors in the firm are not fashioning appropriate returns for the risk, they will invest elsewhere. The current ratio figure is in the average range but on the decline. The debt to equity shows a strong balance sheet and low levels of debt. It is trending downward. The inventory turnover rate is slightly higher than average, indicating that Costco is outperforming competitors in moving product. Also cause for concern is the fact that the working capital is shrinking. This might indicate the inability to expand without a loan. 10. What do you think of Costcos compensation practices? Does it surprise you that Costco employees apparently are ratherwell-compensated?Costcos compensation and benefits are higher than those at walmart. remunerative employees in Costco warehouses could earn anywhere from $30000 to $125000 anually. Costco employees enjoyed a benefit package that include the following points. Health and dental pull off pla ns.A dependant care reimbursement plan.Confidential professional counseling services.Company paid long term disability coverage equal to 60%,of earning for workers that were out for more than one hundred eighty days on a non-workers compensationleave of absence. Generous life insurance policy and accidental death and dismemberment coverage. An employee stock purchase plan.11. What recommendations would you make to Costco top management regarding how best to sustain the companys growth and purify its financial performance?Costco is a company that have some criticism, such as people has to wait for a long time to pay their products. However costco doeS not have big problems that desperately need to be fixed. So it should stand in the same course using the present strategy. I think Costco has the capacity to continue investing in new stores and grow sales. It can also expand sales by introducing new products line, like furniture. The company has the financial resources to keep growin g its business and open more warehouse locations