Costco Powerpoint Presentation


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Costco Powerpoint Presentation

  1. 1. Presentation Etienne Khoury
  2. 2. Executive Summary <ul><li>Purpose : To examine Costco’s business structure and strategy and how those relate to industry success </li></ul><ul><li>Why this is worth YOUR time </li></ul>
  3. 3. Summary <ul><li>Revenues of 71 Billion </li></ul><ul><li>550 Warehouses Today – Operates in: </li></ul><ul><ul><li>40 States </li></ul></ul><ul><ul><li>9 Countries </li></ul></ul><ul><li>$137 million average sales/warehouse </li></ul><ul><li>141,000 square feet/warehouse </li></ul><ul><li>143,000 employees worldwide </li></ul><ul><li>More than 1.4 million transactions/day </li></ul>
  4. 9. Background <ul><li>CEO : James Sinegal </li></ul><ul><li>Headquarters : Issaquah, WA </li></ul><ul><li>Inception : Seattle, WA 1983 </li></ul><ul><li>Stock Symbol : COST (NASDAQ) </li></ul><ul><li>Founders : James Sinegal & Jefferey Brotman </li></ul>
  5. 11. Corporate Strategy <ul><li>Cost strategy </li></ul><ul><ul><li>Penetration Pricing </li></ul></ul><ul><ul><li>Below the Line Promotion </li></ul></ul><ul><ul><li>No frills </li></ul></ul><ul><li>“ Diversion” Buying Strategy </li></ul><ul><ul><li>“ Treasure hunt&quot; shopping experience </li></ul></ul>
  6. 12. Products <ul><li>Sundries which include candy, snack foods, alcoholic and non-alcoholic beverages, and cleaning supplies </li></ul><ul><li>Hardlines which include major appliances, hardware, electronics, and sporting goods </li></ul><ul><li>Softlines including apparel, jewelry, and small appliances </li></ul><ul><li>Fresh food sales, like meat and baked goods </li></ul><ul><li>Other items which include gasoline , pharmacy sales, and Costco's one-hour photo development. </li></ul>
  7. 13. Abell’s Model
  8. 14. Customers (Who) <ul><li>Costco targets independent small business owners who have typically $100,000 or more of personal income </li></ul><ul><li>Actual average Costco customer is women in large householders with income of $50,000 or more </li></ul><ul><li>Most popular with Hispanic and Asian ethnic groups </li></ul><ul><li>Typically customer visits 8-11 times per year </li></ul>
  9. 15. Customers in Taiwan
  10. 16. Customer Needs (What) <ul><li>Quality Products </li></ul><ul><li>Relatively Low Prices </li></ul><ul><li>Convenience </li></ul><ul><li>Reliability </li></ul>
  11. 17. Membership (How) <ul><li>Gold Star Member = $ 50 </li></ul><ul><li>Business Member = $ 50 </li></ul><ul><li>Executive Member = $ 100 </li></ul><ul><li>Membership fees allow Costco </li></ul><ul><li>to maintain low margins </li></ul>
  12. 18. Products (How) <ul><li>Costco focuses on selling products at low prices, at very high volume. </li></ul><ul><li>Goods are usually bulk-packaged </li></ul><ul><ul><li>Marketed primarily to large families and businesses. </li></ul></ul><ul><li>Does not carry multiple brands or varieties </li></ul><ul><ul><li>House brand to sell, under the Kirkland Signature label. </li></ul></ul><ul><li>Results in high volume of sales from single vendor, allowing further reduction in price, and reducing marketing costs. </li></ul>
  13. 19. Industry Analysis <ul><li>Overview </li></ul><ul><ul><li>Warehouse Clubs and Superstores </li></ul></ul><ul><li>SWOT Analysis </li></ul><ul><li>Porter Analysis </li></ul><ul><li>Life Cycle </li></ul>
  14. 20. Industries <ul><li>Retail </li></ul><ul><ul><li>Discount and Variety Retail </li></ul></ul><ul><ul><ul><li>Warehouse Clubs and Superstores (primary) </li></ul></ul></ul><ul><ul><li>Gasoline Retailers </li></ul></ul><ul><ul><li>Grocery Retail </li></ul></ul><ul><ul><li>Nonstore Retail </li></ul></ul><ul><ul><ul><li>Internet Retail </li></ul></ul></ul><ul><li>Consumer Services </li></ul><ul><ul><li>Optical Services </li></ul></ul><ul><ul><li>Travel Agencies and Services </li></ul></ul><ul><li>Financial Services </li></ul><ul><ul><li>Lending </li></ul></ul><ul><ul><ul><li>Mortgage Banking and Related Services </li></ul></ul></ul><ul><li>Insurance </li></ul><ul><ul><li>Property and Casualty </li></ul></ul><ul><ul><ul><li>Autos and Other Vehicles </li></ul></ul></ul><ul><ul><ul><li>Homeowners Insurance </li></ul></ul></ul>
  15. 21. Warehouse Clubs and Superstores <ul><li>Warehouse club membership has grown dramatically over the past couple of years </li></ul><ul><li>Fees can range anywhere from $5-$100 </li></ul><ul><li>Costco, Sam’s Club, BJs Wholesale Club </li></ul><ul><li>Great Success - “big box stores that sell groceries as well as general merchandise at lower costs” </li></ul>
  16. 22. Costco Today <ul><li>550 warehouses Worldwide </li></ul><ul><ul><li>403 in US </li></ul></ul><ul><ul><li>76 in Canada </li></ul></ul><ul><ul><li>21 in UK </li></ul></ul><ul><ul><li>6 in Korea </li></ul></ul><ul><ul><li>5 in Taiwan </li></ul></ul><ul><ul><li>8 in Japan </li></ul></ul><ul><ul><li>31 in Mexico </li></ul></ul>
  17. 23. SWOT Analysis
  18. 24. Strengths <ul><li>54.1m loyal cardholders </li></ul><ul><li>Strong member renewals </li></ul><ul><li>Absolute pricing authority </li></ul><ul><li>Exceptional employees </li></ul><ul><li>Excellent merchandise </li></ul><ul><li>Quality image </li></ul>
  19. 25. Weaknesses <ul><li>Cannibalization </li></ul><ul><ul><li>Costco's overexpansion domestically risks cannibalizing the sales of preexisting stores </li></ul></ul><ul><li>James Sinegal leave </li></ul><ul><li>Maintaining high wages </li></ul><ul><ul><li>Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club </li></ul></ul><ul><li>Maintaining profit margins </li></ul>
  20. 26. Opportunities <ul><li>Recession has allowed Costco opportunities for luxury-item deals, including the chance to sell prime-grade meat that used to go almost exclusively to restaurants. With people eating out less often, said Sinegal, &quot;there are not as many steaks being sold in restaurants, and we're selling them.&quot; </li></ul><ul><li>To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region. </li></ul><ul><li>The stores are currently only trade in a relatively small number of countries. Therefore there are tremendous opportunities for future business in expanding consumer markets, such as China and India. </li></ul>
  21. 27. Threats <ul><li>Being a global retailer means that you are exposed to political problems in the countries that you operate in. </li></ul><ul><li>The cost of producing many consumer products tends to have fallen because of lower manufacturing costs. Manufacturing cost have fallen due to outsourcing to low-cost regions of the World. This has lead to price competition, resulting in price deflation in some ranges. Intense price competition is a threat. </li></ul><ul><li>Bad economic times (current recession) </li></ul>
  22. 28. Porter’s Five Forces <ul><li>Supplier Power </li></ul><ul><li>Low power </li></ul><ul><li>Good relationship </li></ul><ul><li>Large quantities at lower costs </li></ul><ul><li>New Market Entrants </li></ul><ul><li>High barriers to entry </li></ul><ul><li>Costco has high competitive advantage </li></ul><ul><li>Threat of new entrants is low </li></ul><ul><li>Costco has wide array of products at significant low prices, which makes it almost impossible to compete </li></ul><ul><li>Competitive Rivalry </li></ul><ul><li>High Competition </li></ul><ul><li>Economies of scale/supply chain management is easily replicated </li></ul><ul><li>Battle for lower costs results in lower profit margins </li></ul><ul><li>Substitutes </li></ul><ul><li>Low threat of substitutes </li></ul><ul><li>Low cost shopping coupled with high value </li></ul><ul><li>Customer satisfaction/member retention is high </li></ul><ul><li>Buyer Power </li></ul><ul><li>Bargaining power of buyers is high </li></ul><ul><li>Little to no switching costs (membership fees) </li></ul><ul><li>High concentration/quantity of buyers </li></ul><ul><li>Customers have high mobility </li></ul><ul><li>Sell similar to same products </li></ul>
  23. 29. Life Cycle – Maturity Stage <ul><li>Costco is in the mature stage </li></ul><ul><li>Though profitable, slower growth in sales </li></ul><ul><li>Strong brand awareness </li></ul><ul><li>Shares market with established competitors </li></ul>
  24. 30. Competitive Analysis
  25. 31. Competitive Analysis <ul><li>Costco's main competition 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. </li></ul><ul><li>Sam's Club operates 591 warehouse clubs nationwide and earned $44.4 billion in revenue in 2007. </li></ul><ul><li>BJ's operates 177 warehouse clubs across 16 states in the eastern U.S. In 2007, the company earned $9.0 billion in revenue. </li></ul>
  26. 32. Competitive Analysis <ul><li>Greater benefits for Costco employees </li></ul><ul><ul><li>Wages: $17/hr on average </li></ul></ul><ul><ul><li>Health Insurance : 90% premium coverage </li></ul></ul><ul><li>Lower price margins </li></ul>
  27. 33. Financial Analysis <ul><li>Costco earned $71 Billion in revenue in 2008 – 12.5% increase from 2007 </li></ul><ul><li>In 2008, Costco’s operating margin reached 2.77% </li></ul><ul><li>Costco’s net income in 2008 was $1.28 billion dollars – an 18.5% increase from 2007 </li></ul>
  28. 35. Financial Analysis
  29. 36. Costco Stock
  30. 37. Future Outlook Costco's Future Outlook
  31. 38. Questions <ul><li>? </li></ul>