costco wholesale's strategic management

Welcome To Our Presentation

Group: B

Name ID

Sobrata Halder ### 05-005

Abu Syed ### 05-006

Priyanka Tarafdar Bristi ### 05-007

Rifat Tanmoy ### 05-008

Topics Covered

Serial No. Topic

01 Oraganization’s Basic Information

02 Vision

03 Mission

04 Abell’s Model

05 Strategies

06 Warehouse Operations

07 SWOT Analysis

07 Compensation Policy

08 Workforce Practices

09 Business Philoshopy, Ethics & Code of Ethics

10 Competition

Organization’s Basic Information

Costco Wholesale Corporation is a membership-only warehouse club that provides a wide selection of merchandise.

Founded:September 15, 1983, Seattle, Washington, United States

Founders: Jeffrey H Brotman, James Sinegal

Organization’s Basic Information Continued….

Headquarters: Issaquah, WA

Main Feature: Membership Based Wholesale Business

Organization’s Basic Information Continued….

As of 2008, It had 544 warehouses in 40 countries & it’s sales totaled $71 billion.

As of 2008, about 53.5 million individuals, 29.2 million house-holds, 5.6 million business had membership card.

Vision

Present

5 years later

10 years later

The route a company intends to take in developing and strengthening its business in future.

Vision

“Our business is to give the customer the best value we can.” – Jim Sinegal, Founder of Costco

“We're going to be a company that’s on a first-name basis with everyone.”

Business Model

Membership FeesPurchases By Members

Revenue Generation

Low Prices Limited Selection Of Quality MercahandiseWide Range Of Merchandise Categories

Rapid Inventory Turnover

Volume PurchasingEfficient DistributionReduced Handling Of MerchandiseNo-frills, Self-service Warehouse

Operating Efficiencies

Operating EfficienciesRapid Inventory TurnoverRapid Inventory Turnover

Profit & Value Generation At a Very Low Gross Margin

Mission

Costco’s mission statement is – “To continually provide our members with quality goods and services at the lowest possible prices.”

Boundary Boundary

Present Offerings, Types of Customers Served, Geographic Coverage

Mission - Application Of Abell’s Model

Revenue Generation


Who?

Revenue Generation


Costco targets independent small business owners and large rich families

Customers are both national and international

Target customers are mostly Asian & Hispanic.

Typically customer visits 8-11 times per year

What?

Revenue Generation


Moderate & High Quality ProductsRelatively Low PricesProduct VarietyEfficiencyConvenienceTrust & Loyalty Good Service Level

How? - Strategy

Revenue Generation


The cornerstones of Costco’s strategy are low prices, a limited product line and limited selection, and a “treasure hunt” shopping environment.

Strategy? - Membership

Revenue Generation


Executive Member - $ 110

Gold Star Member - $55

Business Member - $55

Membership -

fee is refuandable at any timehelps to maintain a pool of consistent customers enables to maintain low margins

Strategy? - Pricing

Revenue Generation


Sells top quality national & regional brand products at prices consistently below traditional wholesale or retail outlets.

Keeps member coming into shop by wowing them with low prices .

Stocks items that help members save costs.

Strategy? – Pricing Continued…

Revenue Generation


Maintains an average margin of 14% where competitors charge 20 to 50%.

Uses low pricing as the core competency. Tries to lower price from $9 to $8 where

competitors try to increase the price from $9 to $11.

Wall Street analysis has criticized Costco’s pricing strategy that they are satisfying customers at the expense of shareholders.

Strategy? – Product Selection

Revenue Generation


Provide members with a selection of only 4000 items.

About one-fourth of Costco’s line of 4000 proucts constantly changes.

Uses ‘treasure hunt’ technique- buy now or it won’t be available here next time.

Sources high price & quality products from other wholesellers or distressed retailers looking to get rid of excess or slow-moving inventory.

Strategy? – ProductSelection Continued…

Revenue Generation


Costco’s Offerings

AppliancesBaby, Kids & ToysClothing & AccessoriesComputers & PrintersElectronicsFood & Gift Baskets

FuneralFurnitureGift Cards, Tickets & FloralHardware, Auto & TiresHealth & Beauty

Jewelry & Watches

Office ProductsPatio, Lawn & GardenSports & FitnessTravel & LuggageHome & Décor

Strategy? – Marketing

Revenue Generation


Low prices, membership and treasure hunt strategies makes it unnecessary to engage in extensive advertising or sale campaigns.

Strategy? – MarketingContinued…

Revenue Generation


Word of mouth- existing members tell friends & acquaintances about their shopping experience at Costco

Hey Sam, do you know Costco Wholesale is selling various brand HDTVs at 30% discount??

Really so? Are those original?Of course. Then I will buy one.

Okay. But you will have to be a member if you want to buy.

No problem, I’ll be.

Strategy? – MarketingContinued…

Revenue Generation


Promotes selected merchandises to existing members using direct mail program (“The Crostco Connection”- a multipage mailout containing selected merchandise saving coupons).

Strategy? – Growth

Revenue Generation


Costco’s strategy to grow sales & profits has three main elements:

Open more new warehouses. Build an ever larger & fiercely loyal membership

base. Employ well-executed merchandising technique to

increase purchases by members.

Expansion is both national & international.

Strategy? – GrowthContinued…

Revenue Generation


Financial Growth


Revenue Generation


Membership Growth


Revenue Generation


Warehouse Growth

Online Sales

Revenue Generation


Web Sites:www.costco.com (for US)www.costco.ca (for Canada)

http://www.costco.com/

http://www.costco.ca/

Warehouse Operations

Revenue Generation


Warehouses are operated on a 7-day, 69-hour week.

Warehouse managers are delegated authority over store opeartions

Uses cross-docking in inventory movement

Arrived merchandise are directly moved onto the sales floor from warehouses

Warehouse OperationsContinued…

Revenue Generation


For transactions, Costco accepts cash, most debit cards, American Express, and a private-lebel Costco credit card.

Accepts merchandise returns.

SWOT Analysis

Low price

Strong brand

Excellent merchandise

Exceptional employees

54 million members

Economies of scale

Efficiency

S

Strentghs

SWOT Analysis Continued…

WeaknessesBurden of high wages paid to workersLow price marginsE-commerce activitiesSmall Marketing budget compared to

discount retailers and Super Markets

w

Revenue Generation



OpportunitiesExpand into more foreign stable marketsMergers & AcquisitionsMassive supplier pool

Barriers

Opportunity

New Markets

New Suppliers

Mergers & Acquisitions


ThreatsAggressive price competition by rivalsPolitical complications in foreign marketsCannibalization

Compensation

Revenue Generation


In September 2008, Costco had 70000 full time employees and 57000 part time employees worldwide. Costco’s compensation package includes: Basic pay Bonus Other benefits Executive compensation

Workforce Practices

Revenue Generation


The top management always tries to have a satisfied good workforce.

It was company policy to fill at least 86% of higher level openings by promotion from within actually thr percentage ran close to 98%.(2008)

They also make a point of recruiting at local university.

Only the skilled people move up to the higher positions.

Business Philosophy, Values & Code of Ethics

Revenue Generation


Jim Sinegal had ingrained five simple and realistic business principles into Costco’s corporate culture and operation manner. The following are excerpts of these principles and operating approaches:

Obey The Law Take Care Of Our Members Take Care Of Our Employees Respect Our Suppliers Reward Our Shareholders

Business Philosophy, Values & Code of Ethics Continued…

Revenue Generation

Obey The Law

*Comply with all laws and other legal requirements.

* Respect all public officials and their positions.

* Comply with safety and security standards.

* Exceed ecological standards required in every community.

* Comply with all applicable wage and hour laws.

* Conduct business in legal and proper manner in and with foreign countries.

* Not offer, give, ask for or receive any form of bribe or kickback.

* Promote fair, accurate, timely and understandable disclosure in reports filed.


Revenue Generation

Take Care Of Our Members

* Provide top-quality product at best prices.

* Provide high quality, safe and wholesome food products.

* Provide their members with a 100% satisfaction guaranteed warranty on every product and service.

* Assure to sell authentic product which represents the performance.

* Make their shopping environment a pleasant experience.

* Provide product that will be ecologically sensitive.

* Provide best customer service.

* Give back to their communities through employee volunteerism and employee Contribution.


Revenue Generation

Take Care Of Our Employees

* Competitive wages.

* Great benefits.

* Safe and healthy work environment.

* Challenging and fun work.

* Career opportunities.

* Harassment or discrimination free atmosphere.

* An open door policy to resolve issues.

* Opportunities to give back to their communities through volunteerism and fund raising.


Revenue Generation

Respect Our Suppliers

* Treat all supplier as they would expect to be treated.

* Honor all commitments.

* Protect all supplier assigned property.

* Not accept any kind of gratuities from a supplier.

* Avoid actual or apparent conflicts of interest.


Revenue Generation

Reward Our Shareholders

Costco believes that their shareholders are their business partners. They can only be successful so long as they are providing them a good return of their investment. They pledge to operate their company in such a way that their present and future stockholders, as well as their employees will be rewarded for their efforts.

Competition

Revenue Generation


Costco's main competitor is Wal-Mart's Sam's Club. BJ’s, a smaller retail warehouse chain, also competes with Costco and Sam's Club.

The three companies share a similar business model, selling high volumes of merchandise at low prices in a membership-only warehouse club.

Each company sells a similar array of general merchandise, including food, apparel, and gasoline.

Competition Continued…

Revenue Generation


Competition Continued…

Revenue Generation


Sam's Club operates 591 warehouse clubs nationwide and earned $44.4 billion in revenue in 2007.

BJ's operates 177 warehouse clubs across 16 states in the eastern U.S. In 2007, the company earned $9.0 billion in revenue.

Market Positions of Rivals

Revenue Generation


Ope

ratin

g M

argi

n

Number of Locations

Higher

Lower

Few Many

BJ’s

P

Costco

Sam’sClub

Pricesmart Inc.

Note: Circles are drawn roughly proportional to the sizes of the club chains based on revenue

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costco wholesale's strategic management

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