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Introduction• Founded in 1983• CEO: James Sinegal• Headquarters: Issaquah, WA• Inception: Seattle, WA 1983• Stock Symbol: COST (NASDAQ)• Founders: James Sinegal & Jefferey Brotman• Seventh largest retailer in the world• Fastest growing company in the history among American businesses
History Sol Price, along with his son Robert —pioneered what is now termed “warehouse retailing.” In this business model, business owners operate warehouse stores located in the city outskirts, where buildings and real estate property are priced lower. Consumer products are bought directly from the manufacturers and delivered straight to these warehouse stores, where they are sold by the bulk at cheaper prices than that in department stores.
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 Take care of members Take care of employees Respect suppliers Reward shareholders
Key Information Number of warehouses Membership Data 605 (as of 6/29/12) 66.5 million cardholdersAreas of operation 36.4 million households 26.4 million Gold Star438 locations: 40 U.S. States 6.4 million Business82 locations: Canadian 3.6 million Business add ons22 locations: United Kingdom8 locations: Taiwan Warehouse sizes7 locations: Korea 73,000 to 205,000 square feet13 locations: Japan (average 143,000 square feet)3 location: Australia Annual revenues32 locations: 18 Mexican states (FY11 - Ended 8/28/11): Number of employees $88.9 billion(worldwide)160,292 full and part-time
Departments & Services• Tobacco • Cooler & Delivery• Beers, Wines and Spirits • Frozen Food• Office • Health & Beauty• Confectionery • Electronics• Soft Drinks • Sporting Goods• Catering and Cleaning • Lawn & Garden• Butchery • Toys & Seasonal• Automotive & Tyre Bay • Apparel• Grocery • Cookware• Hardware • Small Appliance• Bakery • Domestic• Service Delivery
Kirkland Signature• In 1995, Costco created the Kirkland Signature label, named after the city of Kirkland, Washington, where the Home Office was located at the time.• Kirkland Signature is a $4 billion brand and Accounts for 24 percent of Food & Sundries sales in the U.S.A. and 20 percent globally.• Toilet Tissue is the most popular Kirkland Signature product (approx. $300 million globally).• Costco continues to grow the Kirkland Signature brand, and prides itself on maintaining its high standards for quality value and price.
Kirkland Signature ProductsSome of the most popular items include• Toilet tissue• Spring water• Assorted nuts• Jeans• Belgian chocolates• Vodka• Washing powder• Cookware sets• Bed linen• Wine
Membership• Costco has two types of membership, Business and Individual, both membership types can be upgraded to Executive membership program- which allows you to earn a 2% reward on most purchases, along with other benefits.• Business members generally paid an annual membership fee of $50 for the primary membership card.• Individual members generally paid an annual membership fee of $50.
Costco’s PODPricing• Costco was known for selling top-quality national and regional brands at prices consistently below traditional wholesale or retail outlets• to cap its markup on brand-name merchandise at 14 percent (compared to 20 to 50 percent markups at other discounters and many supermarkets).• Markups on Costco’s 400 private-label (Kirkland Signature) items could be no higher than 15 percent.
Jim Sinegal explained the company’s approach to pricing as follows: We’re very good merchants, and we offer value. The traditional retailer will say: “I’m selling this for $10. I wonder whether we can get $10.50 or $11.” We say: “We selling this for $9. How do we get it down to $8?” We understand that our members don’t come and shop with us because of the window displays or the Santa Claus or the piano player. They come and shop with us because we offer great values.
Product Selection• Typical supermarkets stocked about 40,000 items• A Wal-Mart Supercenter or a SuperTarget might have as many as 150,000 items for shoppers to choose from• Costco’s merchandising strategy was to provide members with a selection of only about 4,000 items.
Sinegal explained the reason for the deliberately limited selection as follows:• If you had ten customers come in to buy Advil, how many are not going to buy any because you just have one size? Maybe one or two. We refer to that as the intelligent loss of sales. We are prepared to give up that one customer. But if we had four or five sizes of Advil, as most grocery stores do, it would make our business more difficult to manage. Our business can only succeed if we are efficient. You can’t go on selling at these margins if you are not
Treasure-Hunt Merchandising• Product line consisted of approximately 4,000 items, about one-fourth of its product offerings were constantly changing. Costco’s merchandise buyers remained on the lookout to make one-time purchases of items that would appeal to the company’s clientele and that would sell out quickly.• The idea was to entice shoppers to spend more than they might otherwise by offering irresistible deals on luxury items.
According to Jim Sinegal, “Of that 4,000, about 3,000 can be found on the floor all the time. The other 1,000 are the treasure-hunt stuff that’s always changing. It’s the type of item a customer knows they better buy because it will not be there next time, like Waterford crystal. We try to get that sense of urgency in our customers.”
Competitive Advantage Finding and negotiating bargains On quality merchandise Building relationships with Manufacturers Suppliers Ingenuity Cost cutting Conservation Human Resources Employing the best talent
SWOT AnalysisS Strengths Weaknesses W Burden of high wages paid Low Prices Strong Brand to workers CEO’s retirement Operating Efficiency Low price margins Exceptional Workforce E-commerce activities Strong membership Small Marketing budget compared to discount retailers and super marketsO Opportunities Threats Appeal to conscientious T shopper Aggressive price Expand into foreign competition by rivals stable markets Political complications in Mergers & Acquisitions foreign markets Massive supplier pool Cannibalization
Strategic IssuesRemain focused on core businessMaintain First Mover StatusIncrease internationalization opportunities
Costco Strategy for the Future• The primary objective of Costco Corporation is the administration of the network of subordinate warehouses, which provide quality goods for competitive prices.• The level of the prices established within the network is usually lower than those offered by the local competitors.• Thus, the company assists local retailers to reduce cost and successfully operate in the competitive environment. Besides, the company serves not only legal persons; any physical person may become the customer of Costco Warehouse as well.
Costco Advantages• Convenience: Costco supermarket is maximum fifteen minutes drive from the point the customer is.• Price: Costco stores attract numerous clients because of its business strategy of providing items in bulk and at low prices . o Sweater • At other store- $20 • At Costco-$15(Brand Nike)
Competitors• Sam’s Club• BJ’s Wholesale Club (both of which have similar business strategies to Costco)
Customer• Costco targets independent small business owners who have typically $100,000 or more of personal income• Actual average Costco customer is women in large householders with income of $50,000 or more• Typically customer visits 8-11 times per year• Goods are usually bulk-packaged o Marketed primarily to large families and businesses.• Does not carry multiple brands or varieties o House brand to sell, under the Kirkland Signature label.• Results in high volume of sales from single vendor, allowing further reduction in price, and reducing marketing costs.
Costcos Biggest Concern• Over expansion• Cannibalization of existing store locations As a result, the company has announced it will slow its domestic expansion plans and will look to international markets for future growth.
Retailing StrategyTarget Market Strategy • Primary target market is small businesses • Marketing teams contact local businesses, trying to persuade them into purchasing a business membership • Direct mail marketing to attract potential customers that meet their customer profile • Dependence of members using word-of-mouth to attract new members to the company
Retailing StrategyProducts • Low prices on selected private and a limited selection of nationally branded products in a wide range of merchandise categories • Kirkland Signature: currently carries 330 private label items which make up 15% of their sales (2006) • Some offerings rotate in and out of the warehouse based on season, and other factors.
Retailing StrategyPromotions • Advertising: Costco limits its advertisement to direct mail to potential new customers. • Public Relations: Costco allows their customers to sample many of their products as they walk through their warehouse. • Personal Selling: When a Costco warehouse opens in a given location, marketers contact businesses around the area to see if they would be interested in becoming a member. • Sales Promotion: Costco limits its marketing and promotional activities to new warehouse openings.
Retailing StrategyPrice • Aggressively buy from a handful of vendors. • Drive the cost down for members and sell in volume. • Individual memberships. • Business memberships.
Retailing StrategyPersonnel and Customer Service • Keeps labor costs low by squeezing more sales out of fewer people. • Limits the amount of employees they have on the sales floor. • No commissioned sales people that work at Costco: customers do not feel pressured by Costco workers to purchase a given product.
Retailing StrategyPresentation • Warehouse-type setting. • Merchandise is generally stored on racks above the sales floor and displayed on pallets containing large quantities of each item. • First things: the most expensive products (diamonds, flashy toys). • Understand their customers in a given location.
Customer Relationship ManagementServices • Unconditional double guarantee o On merchandise: Every product sell with a full refund o Refund membership fee in full at any time dissatisfied • Unlimited Drink Bar • Feedback Box • Serve members free breakfast to know customers • Focus on satisfying all the need of members