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Creative Exposure
 Consulting, LLC




 Mission, Business Model, & Strategy
Introduction
 Founded in 1983
 Fourth largest retailer in the U.S.
 As of 2010, 573 warehouses in 40 states and 7 countries
 Fastest growing company in the history among
  American businesses




 Creative Exposure Consulting
Costco
 Only company to achieve $6 billion in sales from zero in six
  years
 Founder Jim Sinegal coined as the inventor of the wholesale
  Club concept
 Philosophy is to “keep members coming in to shop by wowing
  them with low prices.”
 Does not engage in extensive advertisements or sale
  campaigns
 Five Guiding Principles
     Obey the law
     Take care of members
     Take care of employees
     Respect suppliers
     Reward shareholders

 Creative Exposure Consulting
Product Diversification
 Core - Costco Wholesale
     Warehouse Clubs and Superstores
     Premium private-label products
 Core - Costco Business Centers
     Cross business strategic fit: formula 1+1=3

 Specialty - Consumer Services
     Travel
     Optical
     Automotive
 Financial Services
     401(K)
     Loans
 Insurance
 Pharmacy
 Recycle electronics

 Creative Exposure Consulting
Business Model
 Low Cost/Low Price

   Limited selection of top quality merchandise
   Wide range merchandise categories
   “Treasure Hunt” shopping environment
   No frills, self-service warehouse
   Rapid inventory turnover
   Volume purchasing
   Operating efficiencies


Creative Exposure Consulting
Business Model
      Low prices                                  Volume purchasing

      Limited selection of quality merchandise    Efficient distribution

                                                  Reduced handling of merchandise
     +Wide range of merchandise categories
                                                  +No-frills, self-service warehouse
      Rapid inventory turnover
                                                  Operating efficiencies


          Rapid inventory turnover


          +Operating efficiencies                 Plus Membership Fees

          Profit at a low gross margin (8%-14%)



Creative Exposure Consulting
Business Model Analysis
 Is Costco’s business model appealing?
 Evaluation matrix based on:
     Customer satisfaction – Ranked chief among competitors
     Out-competing rivals – Ranked 4th among competitors
     Response to changing market conditions – One stop shop trends,
      Unique rotating merchandise, understanding affluent shopper
      spending behavior
     Achieving financial/strategic objectives – Progressively
      demonstrates membership growth and net gains each year
     Comparison to competitors – Differentiated, Industry leader
 Are Costco’s prices too low?
     Not as of today, but could prove to be a problem in the future,
      especially in foreign markets due to currency value

 Creative Exposure Consulting
Competitive Advantage
 Building core competencies and competitive
  capabilities
   Finding and negotiating bargains
         On quality merchandise
   Building relationships with
         Manufacturers
         Suppliers
   Ingenuity
      Cost cutting
      Conservation
    Human Resources
      Employing the best talent


Creative Exposure Consulting
Costco vs. Competitors
              Last trade: $0.00   $0.00




Creative Exposure Consulting
Costco vs. Wal-Mart
                               Pricesmart Inc.
             Higher        P
Operating Margin




                                                                                       Sam’s
                                                                                       Club


                                                             Costco
                                            BJ’s



                   Lower



                                  Few                                                     Many
                                                        Number of
                                                        Locations
         Note: Circles are drawn roughly proportional to the sizes of the club chains based on
         revenue
                     Creative Exposure Consulting
2008 Performance
                                FY 2008 Costco vs. Competitors


                                                Net            Comparable
                               Revenue        Income Operating Store Sales
               Company         (Billions)    (Billions) Margin  (Decline) Locations
          Costco                     $70.9        $1.3     2.7%       6.0%      512
          Sam's Club                 $46.8       N/A       3.4%       4.8%      602


          BJ's Wholesale
          Club                       $10.0        $2.3     2.3%       9.4%      180




Creative Exposure Consulting
Rivals’ Next Strategic Moves
 More stores in foreign markets
     Facing market saturation in U.S.
           cannibalization

 Copy Costco
     Sam’s Club opens first Business Centers
           July 22, 2008




 Creative Exposure Consulting
SWOT Analysis
         Strengths                     Weaknesses
  S       Low Prices              W    Burden of high wages
          Strong Brand                  paid to workers
                                        CEO’s retirement
          Operating                    Low price margins
             Efficiency                 E-commerce activities
          Exceptional                  Small Marketing
             Workforce                   budget compared to
          Strong membership             discount retailers and
        Opportunities                  Threats Markets
                                         Super
O        Appeal to
                                   T
                                        Aggressive price
          conscientious shopper           competition by rivals
         Expand into foreign
                                        Political
          stable markets
                                         complications in
         Mergers & Acquisitions         foreign markets
         Massive supplier pool
                                        Cannibalization


Creative Exposure Consulting
Strategic Performance




Creative Exposure Consulting
Financial Performance




Creative Exposure Consulting
Acquiring New Members

                           7.3% increase 1999 & Before




Creative Exposure Consulting
Winning Strategy - YES
                                  Weighted Factors
Factor                             Strategy/Performance                        Score/Weight

Well-matched                       Offensive strategy –Low cost, low            100%/30%
                                   price, First Mover (i.e. Business Center,
                                   Greening Warehouses)


Competitive Advantage              Best cost provider—top quality at           100%/30%
                                   lowest price, distribution efficiency,
                                   strategic alliances & partnerships,
                                   ingenuity/innovation via EFIM
                                   technology.


Sustained performance              From 2000 – 2004 net sales increased by     100%/40%
                                   45%, 2010 SEC Filings reported net
                                   sales increased 9.1% from the prior year
                                   to $76,255, driven by a 7% increase in
                                   comparable sales, membership fees
                                   increased 8.4%, due to new
                                   membership sign-ups and increased
                                   penetration of the higher-fee Executive
                                   Membership program. Stock price


Performance Total                  Outstanding performance                       100/100


   Creative Exposure Consulting
Strategic Issues
Remain focused on core business
Maintain First Mover Status
Increase internationalization
 opportunities




Creative Exposure Consulting
Recommendations
 Target Jim Sinegel’s replacement as CEO in an effort to
  preserve corporate culture
 Increase efficiency and effectiveness of E-commerce
  activities to increase sales in both domestic and foreign
  markets
 Acquire BJ in an effort to gain 180 stores and acquire R&D,
  talented employees, and loyal customers
 Results warrant…
       Increase market share and business footprint
       Ability to capture new customers resulting in membership growth
       Attain BJ’s competences to streamline processes
       Gain market presence in areas not currently located in(i.e.
        clustered club locations)


 Creative Exposure Consulting
Recommendations
 Are recommendations aligned with company
  growth strategy? Yes
 Sales and Profit Growth Strategy
    Open more new warehouses
    Build an even larger and more fiercely loyal membership
     base
    Employ well executed merchandise techniques




Creative Exposure Consulting
Questions
Creative Exposure Consulting

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Costco ppt

  • 1. Creative Exposure Consulting, LLC Mission, Business Model, & Strategy
  • 2. Introduction  Founded in 1983  Fourth largest retailer in the U.S.  As of 2010, 573 warehouses in 40 states and 7 countries  Fastest growing company in the history among American businesses Creative Exposure Consulting
  • 3. Costco  Only company to achieve $6 billion in sales from zero in six years  Founder Jim Sinegal coined as the inventor of the wholesale Club concept  Philosophy is to “keep members coming in to shop by wowing them with low prices.”  Does not engage in extensive advertisements or sale campaigns  Five Guiding Principles  Obey the law  Take care of members  Take care of employees  Respect suppliers  Reward shareholders Creative Exposure Consulting
  • 4. Product Diversification  Core - Costco Wholesale  Warehouse Clubs and Superstores  Premium private-label products  Core - Costco Business Centers  Cross business strategic fit: formula 1+1=3  Specialty - Consumer Services  Travel  Optical  Automotive  Financial Services  401(K)  Loans  Insurance  Pharmacy  Recycle electronics Creative Exposure Consulting
  • 5. Business Model  Low Cost/Low Price Limited selection of top quality merchandise Wide range merchandise categories “Treasure Hunt” shopping environment No frills, self-service warehouse Rapid inventory turnover Volume purchasing Operating efficiencies Creative Exposure Consulting
  • 6. Business Model Low prices Volume purchasing Limited selection of quality merchandise Efficient distribution Reduced handling of merchandise +Wide range of merchandise categories +No-frills, self-service warehouse Rapid inventory turnover Operating efficiencies Rapid inventory turnover +Operating efficiencies Plus Membership Fees Profit at a low gross margin (8%-14%) Creative Exposure Consulting
  • 7. Business Model Analysis  Is Costco’s business model appealing?  Evaluation matrix based on:  Customer satisfaction – Ranked chief among competitors  Out-competing rivals – Ranked 4th among competitors  Response to changing market conditions – One stop shop trends, Unique rotating merchandise, understanding affluent shopper spending behavior  Achieving financial/strategic objectives – Progressively demonstrates membership growth and net gains each year  Comparison to competitors – Differentiated, Industry leader  Are Costco’s prices too low?  Not as of today, but could prove to be a problem in the future, especially in foreign markets due to currency value Creative Exposure Consulting
  • 8. Competitive Advantage  Building core competencies and competitive capabilities Finding and negotiating bargains On quality merchandise Building relationships with Manufacturers Suppliers Ingenuity Cost cutting Conservation  Human Resources Employing the best talent Creative Exposure Consulting
  • 9. Costco vs. Competitors Last trade: $0.00 $0.00 Creative Exposure Consulting
  • 10. Costco vs. Wal-Mart Pricesmart Inc. Higher P Operating Margin Sam’s Club Costco BJ’s Lower Few Many Number of Locations Note: Circles are drawn roughly proportional to the sizes of the club chains based on revenue Creative Exposure Consulting
  • 11. 2008 Performance FY 2008 Costco vs. Competitors Net Comparable Revenue Income Operating Store Sales Company (Billions) (Billions) Margin (Decline) Locations Costco $70.9 $1.3 2.7% 6.0% 512 Sam's Club $46.8 N/A 3.4% 4.8% 602 BJ's Wholesale Club $10.0 $2.3 2.3% 9.4% 180 Creative Exposure Consulting
  • 12. Rivals’ Next Strategic Moves  More stores in foreign markets  Facing market saturation in U.S.  cannibalization  Copy Costco  Sam’s Club opens first Business Centers  July 22, 2008 Creative Exposure Consulting
  • 13. SWOT Analysis Strengths Weaknesses S  Low Prices W  Burden of high wages  Strong Brand paid to workers  CEO’s retirement  Operating  Low price margins Efficiency  E-commerce activities  Exceptional  Small Marketing Workforce budget compared to  Strong membership discount retailers and Opportunities Threats Markets Super O  Appeal to T  Aggressive price conscientious shopper competition by rivals  Expand into foreign  Political stable markets complications in  Mergers & Acquisitions foreign markets  Massive supplier pool  Cannibalization Creative Exposure Consulting
  • 16. Acquiring New Members 7.3% increase 1999 & Before Creative Exposure Consulting
  • 17. Winning Strategy - YES Weighted Factors Factor Strategy/Performance Score/Weight Well-matched Offensive strategy –Low cost, low 100%/30% price, First Mover (i.e. Business Center, Greening Warehouses) Competitive Advantage Best cost provider—top quality at 100%/30% lowest price, distribution efficiency, strategic alliances & partnerships, ingenuity/innovation via EFIM technology. Sustained performance From 2000 – 2004 net sales increased by 100%/40% 45%, 2010 SEC Filings reported net sales increased 9.1% from the prior year to $76,255, driven by a 7% increase in comparable sales, membership fees increased 8.4%, due to new membership sign-ups and increased penetration of the higher-fee Executive Membership program. Stock price Performance Total Outstanding performance 100/100 Creative Exposure Consulting
  • 18. Strategic Issues Remain focused on core business Maintain First Mover Status Increase internationalization opportunities Creative Exposure Consulting
  • 19. Recommendations  Target Jim Sinegel’s replacement as CEO in an effort to preserve corporate culture  Increase efficiency and effectiveness of E-commerce activities to increase sales in both domestic and foreign markets  Acquire BJ in an effort to gain 180 stores and acquire R&D, talented employees, and loyal customers  Results warrant…  Increase market share and business footprint  Ability to capture new customers resulting in membership growth  Attain BJ’s competences to streamline processes  Gain market presence in areas not currently located in(i.e. clustered club locations) Creative Exposure Consulting
  • 20. Recommendations  Are recommendations aligned with company growth strategy? Yes  Sales and Profit Growth Strategy  Open more new warehouses  Build an even larger and more fiercely loyal membership base  Employ well executed merchandise techniques Creative Exposure Consulting