Costco Strategic Plan


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All about Costco and their Kirkland brand. From beginning to present day.

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  • @bwabbott Lol, you commented 12 hours ago - what brought you back to this after 6 years?
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  • Fedex has always gotten me what I needed, I do my fair share of online ordering, but I keep coming across stories of people who have had really bad experiences with the company. There are some really funny vents about it here.
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  • After you got all the information on Fioricet, another point on your agenda should be the price for it. resolves this problem. Now you can make the decision to buy.
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  • Ok, so these comments aren't displayed under the specific slides. Anyway, even though I had issue with some of the content and your interpretations of the facts, this report helped me a bit with what I'm putting together. So thank you for all your work and for making it available :)
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  • If you’ve been in America for a while, then you know that lawsuits are often frivolous and lawsuits often have people on both sides with laws to back them up & believing they are 'right'. People (and lawyers) know it’s really about how much money they can get either by winning or settling. Having said that, about your slides on ethics - I’ve done some quick research an have already found facts that make your presentation look very biased (against corporations or free market): ---

    Accounting: Miniscule compared to high-profile cases (Tyco, MCI, Enron, endless Wallstreet companies, etc). Authorities are satisfied as the few executives who benefited have paid the company back & a review of shareholder opinions indicate this case had no ill effect on Costco’s image, shareholders, relationships with vendors, or revenue. ----

    Backdating memberships: What they did was not illegal per se, since this would mean your annual fee-credit card or gym membership contract is illegal. Do you get to not pay for not using your fee-based Visa card or gym for a few months? Also, if it were illegal then they and many other businesses would not be allowed to continue to have a 'set anniversary' for 'membership'. For practical admin and cost purposes they are still allowed to retain a member’s anniversary date if they pay up to two months late. Before this case, members could still find ways (and were often allowed by local mgmt) to shop even though they were expired, EVEN after a company system upgrade years ago to crack down on this. There was no way for Costco to prove these incidents by the plaintiffs if they payed by cash which was usually their only choice anyway in a situation where they shopped without being a current/paid member. ----

    Hostile work environment: Not much comment needed. Unless you have never worked for a company that had many employees then you know rare isolated incidents can get out of hand. People are people, and these things 'happen every day' because there are thousands of companies in the U.S., but looking within the walls of one company at a time like Costco, this is truely relatively rare & has not affected their business. ----

    Gender discrimination: This is not so cut and dry. Many companies around the world in countries with anti-driscrimination laws are often at odds with their HR. Do you hire/promote the best person that fits the position or do you hire in order to satisfy some legal quota? What do you think is best for the business? Do you know what it takes to move up at place where the work is very physical, especially in the beginning, in the lower ranks? How’s your research on reverse discrimination? I fear you do not know enough about this case to make any conclusions. I don’t either, but I did read about how there were many women (witnesses included) employed for both many and few years with Costco who felt the plaintiffs had no merit and were really just disgruntled employees.---

    Costco’s relationships with suppliers, along with their buying and negotiation stance, is a KEY component to their business strategy. (You may have heard about the pricing dispute with Coca-Cola.). Their buying strategies would have been a better point to focus on than the distraction that your ethnics point was on your report.
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  • Costco CEO Jim Sinegal invented the wholesale club concept in 1983, and a new industry was born. Wholesale clubs were a revolution in retail. They quickly spread throughout the United States, Canada, and Mexico and are quickly expanding into other countries. By the end of 2008, there were 550 stores in 40 states and 7 countries, with 54 million members. By offering quality merchandise at a low price, they attract mostly affluent shoppers.
  • Business Model: Profit at very low margins is the name of the game. Low prices + Limited selection (around 4000 items) + Wide range of merchandise categories (tires to baby wipes) creates the rapid inventory turnover. Volume purchasing + efficient distribution + reduced handling of merchandise + no-frills warehouses = Operating efficiencies.
  • Frequent buys at Costco: Costco price for the list is $171. Grocery Store price is $538, a savings of $367.
  • Costco has the highest wages and the best benefits of most retailers. Employee love working at Costco. In many ways, Costco is the anti-Wal-Mart. Employee loyalty is very important part of their strategy.
  • Costco’s strategic vision…
  • From the beginning Jim wanted Costco to be on a first-name basis with everyone. Costco is about giving customers the best value possible.
  • The best value at the best price sums up the vision. Smaller but powerful parts are treat people right, act ethically (rememberthis for the ethics part) and the vigilance to never forget what makes your business successful.
  • Strategic objectives…
  • Employment Objectives: First, hire great people. Jim said, “If you do right by the people working for you, they will build you a successful business.”
  • Management objectives: Always promote from within.Training happens at all times, not just in the classroom. Model the behavior you want from employees.
  • Business Objectives: Don’t try to be too much to too many, you’ll dilute your business model and lose focus. Know on what level you compete – For Costco they compete on quality and price. They want the highest quality merchandise for the best value. Probably why they attract the more affluent shoppers.
  • Growth Objectives: Run the business for long term sustainability. Sinegalwants Costco to be here long after he’s gone. Open 50-60 new locations per year. Keep Internet sales growing.
  • Marketing Objectives: Jim believes that word of mouth is the most powerful marketing tool there is. It sounds better when somebody else talks about you than when you talk about yourself. Costco still has no PR department and probably never will.
  • Ethics Objectives: Obey the law, Treat customers right, Treat employees right, Treat suppliers right
  • Our biggest challenge is to stay focused on what we do. This transcends any economic challenge we may face. ()
  • Strategy
  • External Environment: The warehouse club Industry is a small but profitable part of the retail industry. In 2008 as the recession took hold, warehouse clubs saw an increase in membership and in sales of basic household items. As the dollar recovers, foreign sales are weakening. In the United States, there is at lease one store in every major metropolitan area. Many also have a Sam’s Club or a BJ’s wholesale club.
  • Market size and growth rate: The warehouse club Industry is a small but profitable part of the retail industry. It is still growing and the outlook is good because even though the domestic market is saturated, expansion in foreign markets is just beginning.
  • The “Wholesale clubs” industry is highly competitive, on factors such as price, merchandise quality and selection, warehouse location and member service. Out of 1200 clubs in North America, 473 are Costco’s. Other wholesale clubs include Sam’s Club and BJ’s Wholesale Club. Costco competes in several types of retail, including specialty, gasoline, and e-commerce
  • Costco is partially vertically integrated. The Kirkland brand partners with manufacturers and suppliers to provide top quality at a low price. The Kirkland brand is on hundreds of products from meat to caskets. Sam’s Club and BJ’s also have their brands but they are lower in quality.
  • They order massive amounts from manufacturers. Bulk packages sell larger quantities to consumers. The huge warehouse clubs eliminate the need for actual warehouses. At the same time, they reduce the need for handling. This greatly enhances distribution efficiency. Their large-scale membership base makes them strong.
  • 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.
  • Driving Forces: e-commerce is still relatively new for Costco and only accounts for 3% of sales. While the domestic market is increasingly saturated, the international arena is wide open. Rising costs are a big concern for an industry that is always striving to cut costs.
  • Driving forces: Costco faces a tax proposal in Montana. The recession is affecting everyone’s lifestyle. Consumers are concerned about the environment and they want to shop at stores that are environmentally friendly.
  • 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.
  • The Competition will open more stores in foreign markets and continue to copy Costco. They will probably be starting recycling programs and installing solar systems on their roofs.
  • Key Success Factors: Internet sales are increasing. Vast network of retail locations with efficient distribution system, No Frills warehouse, Cost cutting efforts, only stock bargains, Treasure hunt merchandise, No-hassle return policy, word of mouth advertizing.
  • The industry outlook is great!
  • This revenue forecast for Costco looks great.
  • The competitive environment
  • These are the general industry categories that Costco competes in. Now they are into recycling used electronics too.
  • In 2008, Costco has a hundred less stores than Sam’s Club, but nearly double the revenue. Costco outsells nearly all stores in dollars per square foot.
  • Strengths: low price, strong brand name, excellent merchandise, exceptional employees, huge membership base, economies of scale, efficient distribution and operation.
  • Weaknesses: CEO will soon be gone, burden of high wages and benefits, plus low margins.
  • Opportunities: Costco has become a clearance for other retailers who can’t sell their goods (like jewelry), so more bargains for Costco buyers. More people joined to save money. There are tremendous opportunities in expanding foreign markets, such as China and India.
  • Threats: Fierce competition, price competition from other retailers, cannibalization due to domestic market saturation, possible political complications in foreign markets.
  • Conclusions from SWOT. Maybe Costco should start accepting manufacturer coupons…
  • On the front-burner: The man who invented this industry is 79. It was his vision alone that made Costco what it is today. There is an ongoing gender discrimination case. Improper accounting led to an ethics and compliance program which must be strictly adhered to.
  • Identifying Strategy
  • Strategy Identification overview: Generic Competitive Strategy, complementary strategic options, functional area strategy and timing
  • Costco only sells top-quality merchandise at the lowest price. Sometimes their items are a little more, but it will be higher in quality and still cheaper than at other stores.
  • Costco partners with manufacturers to make bulk packages and also to manufacture the Kirkland Signature brand (high-quality at a low price). Costco sells everything online. Some of their best deals are online.
  • Costco is constantly developing new ways to package products cheaper, reduce handling, and improve distribution efficiency. Costco cuts costs by not marketing to non-members. Costco owns 80% of their real-estate and buildings.
  • Costco was the first to open Business Centers, delivering office supplies to local business. Costco was green from the very beginning, to save money. They have always saved on things that other retailers refuse to skimp on like prime real-estate, lights in the parking areas (not necessary with shorter operating hours), and fancy merchandise displays. Costco is getting greener in ways that save them money.
  • 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.
  • Costco is partnering with UST for IT support; 75 out of 100 jobs are in India and only 25 are in the United States. Shipping website orders to customers is outsourced to UPS. {The funny looking UPS vehicle is in Mexico.}
  • Costco uses the same basic strategy to compete everywhere, but each manager has the authority to make decisions about their own store because Mexico and Japan have different tastes.
  • Costco must address some macro issues: the domestic market is maturing, they are competing in a fragmented industry (retail), and in the wholesale clubs market Costco is the leader and needs to stay-on-the-offensive.
  • Costco Business Centers are a good example of Cross business strategic fit which will lead to higher performance and the 1+1=3 gains for shareholders.
  • Unrelated Diversification: travel, optical, automotive, financial services like 401(K)s Loans, insurance, Pharmacy, Recycling old electronics.
  • Unrelated diversification. These services help improve member loyalty. Costco can easily partner with new service providers; they just need to put their name on it and offer it to their members.
  • Deceptive practices: Costco was increasing the size of their  “Kirkland Signature” tuna, from 6 ounces to 7 ounces. They somehow forgot to mention the price per can increased!  Bottom line: the price per ounce has increased. Also, if margins are so slim, how can everything be rounded up to .99. that makes no sense.
  • If Costco followed their own ethic a little better (“Obey the law.”), these lawsuits would not come up. So far, they are losing a lot of revenue.
  • Costco’s Code of Ethics is very simple. Accomplishing 1 – 4 will lead to 5. Rewarding the shareholders is the ultimate goal. The full version of ethics is quite lengthy and wordy.
  • Costco has donated more than $140 million in just the past 10 years. Employees are actively involved in the community with reading programs, scholarship programs, and raising money for children’s hospitals.
  • Costco wants to improve the environment. They have a new recycling program. They partner with gazelle. They buy used electronics.
  • They have live chat. There is a list of gadgets they will buy. you can look up by zip code and find recyclers near you. They give you a map to find them.
  • Costco is experimenting with green packaging and they also make their own line of green cleaning products.
  • Energy Management and Conservation: use of skylights, control lighting based on the time of day, evaluating lighting technologies for better light at a lower cost, high efficiency heating and air conditioning, solar panels,hybrid delivery trucks. This benefits the members, shareholders, and communities where they do business.
  • Costco installed their first solar power system in 2006 at Lancaster, CA. It was so successful they are installed 4 more. Costco has the largest privately owned, multi-site commercial PV systems in the US. At the end of 2008, they had a total of 17 rooftop installations.
  • Solar Innovation: Costco is utilizing new technology to save big bucks and at the same time appealing to customers by going green.
  • you’ll find horrifically environment-unfriendly packaging of many small items (especially electronic items) at Costco.  There are huge plastic blister packs, combination plastic and cardboard blister packs. One trip to Costco can create a huge pile of empty packaging.
  • The Costco website offers online tools to manage health. Notice the improved vision benefits.
  • Costco has a diverse work force. This can be a benefit in foreign markets.
  • Strategy Execution
  • Costco does an excellent job of recruiting the best and brightest employees. They attract them with high pay and the best benefits in the industry. The employees are loyal. All managers are hired from within so they really know the business.
  • Core competencies and competitive capabilities put Costco at the top, they include finding and negotiating bargains on quality merchandise, building relationships with manufacturers and suppliers, and ingenuity for cutting costs, conservation, and more.
  • In organizing the work effort: Costco uses a decentralized structure allowing store managers to make critical decisions about running their store. They utilize strong peer pressure on individuals to act responsibly.
  • Costco has an Enterprise Facility Information management system, each Costco is connected to corporate, the EFIM provides real-time information, management of control systems (like energy), and an inventory management system that allows suppliers to monitor their own stock levels at any Costco.
  • The EFIM reduces costs related to energy consumption, maintenance, and contracted services.
  • Non-monetary rewards: Costco only hires the best of the best. There are employee contests with great prizes, it is fun to work there. Monetary rewards: the best pay and benefits in the industry, bi-annual bonus for hourly employees, and free membership. {Also, paid vacation, paid sick days, paid holidays.}
  • Costco has a high-performance culture. The work environment is fun, employees have contests focused on improving performance with the winner receiving a generous reward. Culture comes from the top down. Quality is very important. The small things are very important. Everything must look right because that’s the way Jim wants it, and you never know when Jim will fly in for a visit.
  • Evaluating Strategy
  • Costco is building new warehouses and acquiring new members. These trends are expected to continue at the same rate despite the recent recession.
  • Achieving financial objectives: Costco has Better net sales, better net income, and keeps expenses down year after year.
  • 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.
  • earned nearly $2.0 billion and earned $150 million. The chart shows a steady increase in sales.
  • quarterly profit fell 29% because of softer sales and litigation charges (due to poor ethics), and aslump in spending on discretionary items like jewelry. Increased employee health care costs were also a factor.
  • At the end of 2008, there were 550 Costco’s in all. Costco is in 7 countries. One of their next goals is to expand into Europe. There are plans for 20 more Costco’s in Mexico.
  • US sales were down the last couple of months, but international sales look great. Too bad that 79% of our sales are from the U.S., and only 21% are international.
  • Inventory turnover is a biggy in the wholesale club industry. Costco has the best. Costco has a good ROI and growth rate. Costco’s goal is very low margins. They got beat by BJ’s. Perhaps because of lower pay and benefits.
  • Stock performance: Costco is the blue line. Shows value of stock from Jan 05 to June 09. BJ’s has been beating Costco here too, but Costco is #2!
  • Image and Reputation: The most recent American Customer Satisfaction Index again placed Costco at the top of the list of retailers for the fifth consecutive year, and Fortune Magazine named Costco the fourteenth most admired company in the U.S. this year.
  • Recommendations
  • We love Costco’s strategy, but we want to make some adjustments.
  • When Clinton was President he said, “Start excepting food stamps and educate people about food stamp eligibility.” Nationwide only 67% of eligible people take advantage of the Food Stamp Program.
  • People save lot’s of money with bulk prices. The savings on these food items totals $367.
  • Costco should attempt to acquire BJ’s Wholesale Club. They can gain 180 stores without worrying about market saturation. Then they will be ahead of Sam’s club. Costco already has a lot of stores on the east coast so their distribution network is in place. Employees would gladly trade for higher pay and better benefits.
  • Go Global: Get 50% income from international sales, Partnerships in more countries, and More profit sanctuaries. The Costco formula can work anywhere. As an adept first-mover, they can dominate the international markets.
  • Be more ethical: Costco settled some major lawsuits this year, the red ones, and they are currently involved in a large number of legal proceedings and audits that could unfavorably affect operations or require substantial amounts of money. Legal Defense is very costly, and not just in money, diversion of management’s time and talent is also costly. Just obeying rule #1 will save millions and help prevent price increases.
  • Change Ethics:Ethical universalism will not continue to work in the international environment. SinceCostco wants to grow there, they needs to modify their current philosophy, and begin to use the integrated social contracts theory. This will better suit foreign countries like Japan where the culture and social customs are very different from the United States. They also need to retrain the unintentionally amoral managers, and weed out the intentionally amoral managers.
  • Adding Services is a good way to counteract the negative effects of current market conditions. It’s very easy for Costco to place their brand name on something and offer it to their members. Adding new services like money orders and money transfers could save members time and give them one more reason to renew memberships.
  • Costco is the Industry leader. They need to stay on the offensive. They originate ideas (like Costco Business Centers) and the competition duplicates them. Costco has some promotions, but they need better ones like this free 60-day pass for BJ’s. BJ’s also accepts manufacturers coupons and food stamps. Costco should use BJ’s ideas that can be adapted to fit Costco.
  • More efficient e-commerce: There are seven Costco websites; 2 are e-commerce sites that don’t ship outside the US or Canada. We want to see one e-commerce site that has multiple-language support, and ships anywhere in the world.
  • Preserve Corporate Culture: Jim is 79. Costco will lose the man who invented the wholesale club industry, who had the passion and drive to make it what it is today. With a new CEO things might change. In order to reduce the impact, Costco needs to find ways to adhere to its core values. So it can keep what makes them Costco.
  • Any questions?
  • Costco Strategic Plan

    1. 1. Strategic Plan<br />Team 1<br />
    2. 2. About Costco<br />End of 2008 <br />$71 Billion in Sales<br />550 stores world-wide<br />54 million members<br />Avg yearly income $70K<br />Quality merchandise<br />Low price<br />Rapid inventory turnover<br />
    3. 3. Business Model<br />Plus membership fees<br />
    4. 4. Huge savings for members<br />
    5. 5. “I want to retire here. <br />I love it here.”<br />
    6. 6. Strategic Vision<br />
    7. 7. Vision<br />“Our business is to give the customer the best value we can.” – Jim Sinegal, Founder of Costco<br />“We&apos;re going to be a company that’s on a first-name basis with everyone.”<br />
    8. 8. Strategic Vision<br />Give customers the best value, at the best price<br />Treat people right, and with respect<br />Act ethically<br />Most importantly never lose sight of what the purpose of your business is<br />Best value, best price<br />
    9. 9. Short- and long-term<br />Strategic Objectives<br />
    10. 10. Employment Objectives<br />Hire great people<br />Treat them well<br />Give them good jobs<br />Do right by them<br />
    11. 11. Management Objectives<br />Always promote from within<br />Training happens constantly <br />Grow our own talent <br />Model what you want from your employees<br />
    12. 12. Business Objectives<br />Don’t try to be too much to too many<br />Know on what level you compete<br />Know your customers<br />why they do business with you<br />Stay focused on your core business<br />
    13. 13. Growth Objectives<br />Run the business for long-term sustainability<br />Open new stores<br />50-60 new locations per year<br />Keep Internet sales growing<br />
    14. 14. Marketing Objectives<br />Word of mouth only<br />No PR department, ever?<br />
    15. 15. Ethics Objectives<br />Obey the law<br />Treat customers right<br />Treat employees right<br />Treat suppliers right<br />
    16. 16. Biggest Challenge<br />Stay focused on what we do<br />Our business model<br />Focus on our core business<br />
    17. 17. Retail industry<br />The External Environment<br />
    18. 18. External Environment<br />General economic condition<br />recession recovery<br />Stronger dollar = weaker foreign sales<br />Domestic market is maturing<br />Saturated<br />At least one store in each major metropolitan area<br />Often going head-to-head<br />
    19. 19. Market size and growth rate<br />5-yr Growth: <br />5.73%<br />5-yr Growth: <br />13.28%<br />
    20. 20. Sales Breakdown<br />Number of Rivals<br />Over 1,200 warehouse clubs in North America<br />only 473 Costco’s<br />Other retailers and wholesalers<br />groceries<br />general merchandise chains <br />Wal-Mart, Target, and Kohl’s <br />specialty chains<br />Barnes & Noble, Lowe’s, Best Buy, Staples<br />gas stations<br />e-commerce<br />
    21. 21. Vertical Integration<br />Partially vertically integrated<br />Cross-dock distribution <br />Backward integration<br />Kirkland Signature brand<br />Relationships with <br />Manufacturers<br />Suppliers<br />
    22. 22. Economies of scale<br />Gigantic sized orders<br />Bulk packaging<br />Largest warehouse stores<br />Membership base (54 mil)<br />
    23. 23. Competitive Forces<br />Substitutes<br />Strong threat<br /><ul><li>Good substitutes everywhere
    24. 24. Price not significantly higher
    25. 25. Comparable product features
    26. 26. More variety of features
    27. 27. Low switching cost</li></ul>Suppliers<br />Weak bargaining power<br /><ul><li>Many suppliers
    28. 28. Low switching cost
    29. 29. Many substitutes exist
    30. 30. Large quantities are needed</li></ul>Competing Sellers<br />Fierce competition<br /><ul><li>Costco is on top
    31. 31. Quality is slightly better
    32. 32. Buyer demand is growing
    33. 33. Buyer’s switching cost is low</li></ul>Buyers<br />Weak bargaining power<br /><ul><li>Some switching costs
    34. 34. Large membership base
    35. 35. Costco has the best value</li></ul>Potential New Entrants<br />Low threat<br /><ul><li>Small pool of entry candidates
    36. 36. High barriers to entry
    37. 37. Expanding market
    38. 38. Attractive profits</li></li></ul><li>Driving Forces<br />Internet<br />Market saturation<br />Rising costs<br />
    39. 39. Driving Forces<br />Legislation<br />proposed tax on big-box stores <br />Recession <br />Technology <br />green technology is a concern<br />
    40. 40. Market Positions of Rivals<br />Pricesmart Inc.<br />P<br />Higher<br />Sam’sClub<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 />
    41. 41. Rivals’ Next Strategic Moves?<br />More stores in foreign markets<br />facing market saturation in U.S.<br />cannibalization<br />Copy Costco<br />Sam’s Club opens first Business Centers<br />July 22, 2008<br />
    42. 42. Key Success Factors<br />Internet sales<br />Vast network of retail locations<br />cross-docking <br />No-frills warehouse<br />Ongoing effort to cut costs <br />Only stock bargains<br />Treasure-hunt merchandise<br />No-hassle return policy<br />Word of mouth advertising<br />
    43. 43. Industry Outlook<br /><br />
    44. 44.
    45. 45. World-wide retail<br />The Competitive Environment<br />
    46. 46. Industries Costco Competes In<br />Retail <br />Consumer Services<br />Financial Services<br />Insurance<br />
    47. 47. Competitive Analysis<br />Costco&apos;s main competitors<br />Sam&apos;s Club<br />BJ’s Wholesale Club<br />Other retailers<br />
    48. 48. SWOT – Strengths<br />Low price<br />Strong brand<br />Excellent merchandise<br />Exceptional employees<br />54 million members<br />Economies of scale<br />Efficiency<br />
    49. 49. SWOT – Weaknesses<br />James Sinegal is 79<br />Maintain high wages<br />42% higher than Sam&apos;s Club <br />Maintain low margins<br />
    50. 50. SWOT – Opportunities<br />Recession<br />Easier to find bargain luxury-items<br />Increased popularity of Costco<br />Expanding foreign markets<br />Europe<br />China<br />India<br />
    51. 51. SWOT – Threats<br />Fierce competition<br />Other retailers<br />Cannibalization<br />Political problems in other countries<br />
    52. 52. Conclusions from SWOT<br />Overall, Costco is doing great!<br />
    53. 53. Front-burner Issue<br />Who will replace the CEO?<br />Gender discrimination lawsuit<br />Improper accounting<br />Ethics and compliance program<br />
    54. 54. Identifying Current Strategy<br />
    55. 55. Strategy Identification Overview<br />Generic Competitive Strategy<br />Complementary Strategic Options<br />Functional Area Strategy<br />Timing<br />
    56. 56. Generic Competitive Strategy<br />Best-Cost Provider<br />Top-quality merchandise<br />Lowest price<br />Treasure-hunt items<br />Kirkland Signature<br />Top-quality in-house brand<br />
    57. 57. Complementary Strategic Options<br />Strategic alliances<br />Bulk packages for Costco<br />Kirkland brand<br />Website strategy<br />Brick-and-click<br />
    58. 58. Functional Area Strategies<br />Distribution<br />Cross-dock<br />Marketing<br />No marketing<br />HR<br />Promote from within<br />Finance<br />Own 80% of real-estate and buildings<br />
    59. 59. Timing – First Mover<br />Costco Business Centers<br />Greening of Costco warehouses<br />Energy conservation<br />No-frills<br />Energy conservation<br />Finding new ways to repackage <br />Products<br />Services<br />
    60. 60. Alliances and Partnerships<br />Partnerships<br />Mexico 31 warehouses a <br />50%-owned joint venture<br />access to <br />Foreign market<br />Key officials<br />Taiwan 5 locations<br />through a 55%-owned subsidiary<br />Alliances<br />Kirkland Signature is a strategic alliance with<br />Suppliers<br />Manufactures<br />Martha Stewart<br />Bumble Bee<br />Service Providers<br />Payroll Services<br />Prepaid Express Shipping<br />Web Sites<br />Etc.<br />
    61. 61. Outsourcing<br />IT Support<br />US Technology Resources LLC<br />75 out 100 jobs are in India <br />Shipping from<br />UPS<br />FedEx<br />
    62. 62. Competing in Foreign Markets<br />Think global, act local<br />Same basic strategy<br />Low price<br />Tailor product offerings by<br />Cultural difference<br />Local managers decide<br />More foreign markets<br />Europe<br />China<br />India<br />
    63. 63. Specific Industry and Company Situations<br />Address these macro situations<br />Competing in Maturing Industries<br />Competing in Fragmented Industries<br />Strategy for Industry Leaders<br />
    64. 64. Related Diversification<br />Costco Wholesale<br />Warehouse Clubs and Superstores<br />Costco Business Centers<br />Cross-business strategic fit<br />1 + 1 = 3<br />
    65. 65. Unrelated Diversification<br />Consumer Services<br />Travel<br />Optical<br />Automotive<br />Financial Services<br />401(K)<br />Loans<br />Insurance<br />Pharmacy<br />Recycle electronics<br />
    66. 66. Unrelated Diversification<br />
    67. 67. Ethics and Social Responsibility<br />
    68. 68. Ethical?<br />Is diversion buying ethical?<br />Diversion Buying<br />Crocs only sell at full price to protect its brand name and price structure<br />Crocs did not sell to Costco, nor has it authorized any of its customers to sell to Costco.<br />Improper accounting practices<br />Ethics and compliance program<br />One of the conditions for dropping case<br />
    69. 69. Deceptive Pricing?<br />April 2009, Costco announces <br />Kirkland tuna can size increases <br />6oz to 7oz, yeah!<br />Failed to mention the price increase<br />Price per ounce increased!!!<br />How can all the prices end in .99<br />If the margin is capped at 14%<br />Is $10.25 just rounded up?<br />
    70. 70. Recent Lawsuits<br />April 2008<br />National class action gender bias suit<br />December 3, 2008<br />Costco Employee Awarded $420K<br />March 9, 2009<br />Gay Employee Sues Costco for Retaliation<br />May 1, 2009<br />Costco Settles Membership Class Action<br />
    71. 71. Costco’s Code of Ethics<br />Obey the law<br />Take care of our members<br />Take care of our employees<br />Respect our suppliers<br />Reward our shareholders<br />The ultimate goal<br />+<br />Code of Ethics (full version)<br />
    72. 72. Corporate Social Responsibility<br />More than a figure of speech <br />Donating money and time is good for<br />memberships<br />patronage<br />
    73. 73. community service activities, charitable causes, better quality of life<br />Last 10 years<br />more than $140 million<br />Actively involved in community<br />reading programs in schools<br />scholarship programs for the disadvantaged<br />Contributing and raising money<br />children’s hospitals <br />
    74. 74.
    75. 75. Chat<br />Sell<br />
    76. 76. Protect the Environment<br />Green packaging<br />Renewable paper and cardboard<br />Not plastic clamshells<br />Green cleaning products<br />
    77. 77. Energy Management and Conservation<br />Skylights<br />Timed lighting<br />More efficient lighting<br />High-efficiency heat and AC<br />Hybrid delivery trucks<br />Solar panels<br />Pay employees to <br />Carpool<br />Ride bus<br />
    78. 78. Solar Power<br />2006 Costco&apos;s first 580 kW prototype system a success<br />Lancaster, CA <br />Four more systems added<br />600 kW (DC) per location<br />Largest commercial PV systems in the U.S.<br />17 PV systems in 2008<br />
    79. 79. Solar Innovation at Costco<br />Hazlet, New Jersey<br />500kW system<br />new Solyndra panels <br />cylindrical modules <br />Largest Solyndra system<br />
    80. 80. Excessive Packaging<br />environment-unfriendly packaging of small items <br />huge plastic blister packs <br />can’t always be recycled<br />plastic and cardboard blister packs<br />terribly excessive packaging <br />a crime against the planet<br />
    81. 81. Employee Well-being <br />Best pay<br />Best benefits<br />spouses<br />children<br />domestic partners<br />Pays a larger percentage of premiums<br />withheld pre-tax<br />
    82. 82.
    83. 83. Workforce Diversity<br />Costco is diverse with respect to<br />Gender<br />Race<br />National origin<br />Disabled, etc.<br />International companies benefit from having a diverse workforce<br />Better communication<br />
    84. 84. Strategy Execution<br />
    85. 85. Building an Organization Capable of Good Strategy Execution<br />Staffing the organization<br />Recruit the best<br />All managers are hired internally<br />Continuous training<br />High pay and great benefits<br />Fun work environment<br />
    86. 86. Building an Organization Capable of Good Strategy Execution<br />Buildingcore competencies and competitive capabilities<br />Finding and negotiating bargains<br />On quality merchandise<br />Building relationships with <br />Manufacturers<br />Suppliers <br />Ingenuity <br />Cost cutting<br />Conservation <br />
    87. 87. Building an Organization Capable of Good Strategy Execution<br />Organizing the work effort<br />Decentralized decision making<br />Peer pressure<br />Honesty<br />Good Health<br />
    88. 88. Enterprise Facility Information Management (EFIM) system<br />Each Costco is connected to corporate HQ<br />EFIM provides <br />real-time information<br />manage control systems<br />Inventory management system<br />
    89. 89. EFIM<br />Reduce operating costs related to <br />energy consumption<br />maintenance<br />contracted services<br />
    90. 90. Rewards and Incentives<br />Non-monetary rewards<br />Making the team<br />Employee contests<br />Fun and exciting workplace<br />Monetary rewards<br />The best pay<br />Best benefits<br />Free membership<br />
    91. 91. Culture and Leadership<br />High-Performance Culture<br />Fun and exciting<br />Continuous training<br />Teamwork<br />Diversity<br />Customer first<br />
    92. 92. Corporate Culture<br />Honesty and frugality<br />“Value and low price”<br />Lead by example<br />Hire from within<br />Culture of inclusion<br />generous pay<br />first name basis<br />fun and energetic<br />
    93. 93. Evaluating Strategy<br />
    94. 94. Achieving Strategic Objectives<br />
    95. 95. Achieving Financial Objectives<br />
    96. 96. Acquiring New Customers<br />7.3% increase 1999 & Before<br />5.1% increase overall<br />
    97. 97. e-commerce<br />Build on success <br /><br /><br />No online shopping<br />Mexico<br />UK<br />Taiwan<br />Japan<br />Korea<br />
    98. 98. Quarterly Profits Fell 29%<br />Foreign Sales<br />Litigation<br />Slump in luxury items<br />Increased health care costs<br />
    99. 99. Geographic Coverage<br />
    100. 100. International Market<br />Greater international expansion<br />International sales are high<br />21.5%<br />U.S. Sales are down<br />78.5%<br />
    101. 101. Key Ratios<br />
    102. 102. Stock Performance<br />Last 5 years<br />Compared to Nasdaq (yellow)<br />
    103. 103. Image and Reputation<br />
    104. 104. Moving forward<br />Recommendations<br />
    105. 105. Recommendations Overview<br />Accept food stamps<br />Acquire BJ’s Wholesale Club <br />Keep expanding overseas<br />Be more ethical<br />Continue to add services<br />Industry Leader strategy<br />Better promotions<br />Improve e-commerce<br />A little good PR better than no PR<br />
    106. 106. Food Stamps<br />Educate consumers about food stamps<br />Accept food stamps<br />Only 67% of eligible people get food stamps<br />Missouri at 98%<br />California at 50% <br />New York where 63%<br />
    107. 107. Huge savings for members<br />
    108. 108. Acquire BJ’s<br />BJ’s may soon be up for sale<br />BJ’s is beating Costco<br />Distribution network is in place<br />Employees get <br />higher pay and <br />better benefits<br />
    109. 109. Go Global<br />50% from international sales<br />First-mover benefits<br />Partnerships <br />More profit sanctuaries<br />Costco is not yet in<br />Europe<br />China<br />India<br />
    110. 110. Obey the law<br />Take care of our members<br />Take care of our employees<br />Respect our suppliers<br />Reward our shareholders<br />The ultimate goal<br />Be More Ethical<br />Legal Proceedings and Audits<br />Improper accounting practices<br />Illegally backdating memberships<br />Hostile work environment<br />Gender Discrimination<br />Hire more women managers<br />Grand jury investigations<br />Tort and other litigation<br />Forced to raise prices<br />Code of Ethics<br />
    111. 111. Change Ethics<br />From<br />Ethical universalism<br />One size fits all<br />To<br />Integrative social contracts theory<br />Universal + Local<br />Retrain<br />Unintentionally amoral managers<br />Weed out<br />Intentionally amoral managers<br />
    112. 112. Continue to Add Services<br />Partner with services providers<br />Offer new services<br />Money orders<br />Money transfers<br />Current market conditions<br />Maturing market<br />cannibalism<br />Fragmented market<br />Industry Leader<br />
    113. 113. Strategy for Industry Leader<br />Stay-on-the-offensive strategy<br />First-mover<br />Costco Business Centers<br />Promotions<br />Copy BJ’s<br />
    114. 114. Offer Shared Memberships<br />10-20% loss of all shoppers<br />“Intelligent loss of sale”<br />Consumer Reports said<br />“Everyone saves at Costco”<br />Shared memberships promotion<br />Any two families<br />
    115. 115. Efficient e-commerce<br />Currently 7 websites<br />Two e-commerce sites<br />U.S. and Canada<br />No shipping outside <br />U.S. or Canada<br />Make one website<br />Multiple languages<br />Ship to all locations<br />
    116. 116. A Little Good PR is Better No PR<br />Cut visits in half<br />Use savings to buy PR<br />Greening of Costco<br />Children’s hospitals<br />Reading programs<br />Etc.<br />Find the PR bargains<br />
    117. 117. Preserve Corporate Culture<br />Jim is 79<br />Loss of intellectual capital<br />With the next CEO<br />Things could change<br />Adhere to core values<br />Obey the law<br />Respect our <br />Members <br />Employees <br />Suppliers <br />
    118. 118. Questions?<br />