The company’s business model was to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories.Management believed that rapid inventory turnover—when combined with the operating efficiencies achieved by volume purchasing, efficient distribution, and reduced handling of merchandise in no-frills, self-service warehouse facilities—enabled Costco to operate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercenters.
The size of circle is based on revenue. Costco has the highest revenue. A lower operating margin equals a lower markup on merchandise. A lower operating margin is consistent with charging lower prices and running a leaner (no-frills) operation. Costco has the lowest operating margin and Sam’s club has the most locations.
Strengths: low price, strong brand name, excellent merchandise, exceptional employees, huge membership base, economies of scale, efficient distribution and operation. They do direct mail market to new customers as well as existing customers. Weaknesses:
If you look at 1999 & before you can see that on the average, a Costco will perform better year after year, and each year there are more Costcos.
Costco is threatened by a low consumer confidence. The main factor for this is ethics. Now, today more than ever customers are concerned with topics such as how a company treats their employees, where the products they are buying come from and how those products are made. Seeing as Costco has experienced legal accusations in regard to employee treatment and labor practices, this could reduce customer confidence in Costco Corporation.
The Warehouse Clubs and Superstores industry (which was invented by Costco) is very competitivelyunattractive unless you are ideally suited to compete in it. There are substitutes on every corner, and switching costs are very low and variety in size, color and options is much greater at other stores.
Costco Mexico is a partnership. Taiwan is a subsidiary. Kirkland Signature brand forms strategic alliances with suppliers of products like auto insurance and also with manufacturers like Bumble Bee and Martha Stewart.
Customers (Who)<br /><ul><li> Costco targets independent small business owners who </li></ul> typically have $100,000 or more of personal income<br /><ul><li> The typical Costco customer is a female with a large </li></ul> householders with income of $50,000 or more<br /><ul><li> Costco is popular with Hispanic and Asian ethnic groups
The average Costco customer visits 8-11 times per year</li></li></ul><li>Customer Needs (What)<br /><ul><li> Quality Products
Besides low price and high quality products from signature Kirkland. … What else to make Costco so successful ? <br />“"One-quarter of the merchandise is being rotated every week, and people like the treasure-hunt mentality of going to a club store, it's going to a branded-goods garage sale with goods you want to buy." <br />Treasure-Hunt Merchandising<br />
“Always promote from within.<br /> Training happens constantly. <br /> Grow our own talent.<br /> Model what you want from your employees." <br />Management Strategy to Employees ?<br />
Employee Objective: Ratio Highlight<br />Employees covered by company health insurance - Costco 82% - Wal-Mart 48%Insurance-enrollment waiting periods (for part-time workers) - Costco 6 months - Wal-Mart 2 yearsPortion of health-care premium paid by company - Costco 92% - Wal-Mart 66%Annual worker turnover rate - Costco 24% - Wal-Mart 50%<br />
Market Positions of U.S. Rivals<br />Sam’sClub<br />Higher<br />Costco<br />Operating Margin<br />BJ’s<br />Lower<br />Few<br />Many<br />Number of Locations<br />Note: Circles are drawn roughly proportional to the sizes of the club chains based on revenue<br />
Attractive profits</li></li></ul><li>Global Strategy:<br />Think Global and Act Local <br />
Partnerships and Alliances<br />Mexico 32 warehouses a 50% owned joint venture access to <br />-- Foreign market<br />-- Key officials<br />Taiwan 6 locations<br />-- through a 55%-owned <br /> subsidiary<br />Kirkland Signature is a strategic alliance with<br />-- Suppliers<br />-- Manufactures<br />Service Providers<br /> -- Payroll Services<br /> -- Prepaid Express Shipping<br /> -- Web Sites<br />Partnerships<br />Alliances<br />+<br />
Global Market Sales<br />U.S. Sales represent 78.5% of sales<br />International sales are high 21.5%<br />RECOMMENDATION:<br />Greater international expansion either in existing regions or in <br />-- Europe<br />-- China<br />-- India<br />
Global E-commerce<br /><ul><li> Currently 7 websites</li></ul>-- Two e-commerce sites (Only for U.S. and Canada)<br />-- No shipping outside (Except for U.S. and Canada)<br />RECOMMENDATION:<br /><ul><li> Costco should make one website</li></ul>-- Multiple languages<br />-- Ship to all locations<br />
Other RECOMENDATIONS<br />Membership Strategy Adjustments:<br />Non-Member Day <br /><ul><li> A quarterly event that allows non-members a trial day at the store.
Purpose: allowing trial raises probability of a prospect becoming a club member</li></ul>“Household” Plan<br /><ul><li> $20 for every additional household member
Purpose: use existing relationships to leverage new ones increasing membership rates</li></li></ul><li>Other RECOMENDATIONS<br />Membership Strategy Adjustments:<br />Membership Rewards Program<br /><ul><li> Pay $80 for your annual membership and get 2% off every purchase</li></ul>Competitors Have Found This Successful:<br /><ul><li> BJ’s allows customers to enroll in rewards club membership for $80 dollars.
Receive a 2% rebate on purchases (capped at$500).
Results: 5% of all memberships and 10% of all merchandise and food sales.</li></li></ul><li>Financial Analysis<br />
Life Cycle – Maturity Stage<br /><ul><li> Costco is in the mature stage</li></ul> - Though profitable, slower growth in sales<br /> - Strong brand awareness<br /> - Shares market with established competitors<br />