COSTCO

1.- What is COSTCO's business model appealing? Is the company's

business model appealing ? Why or why not?
Costcos business model is focused on producing high sales volumes and rapid inventory
turnover by offering members low prices on a limited selection of national name brands
and select private-label products in a wide range variety. Costcos business model is
appealing because they are able to continually sell to a niche market. By offering the best
products possible at lower price, they are able to have these members return. Whereas
Costco has offered the most popular products in order to have a rapid turn-over. Costco
has proven that there business strategy has worked by continually producing higher sales.
2.- What are the chief elements of COSTCO's strategy ? How good is
the strategy?
The elements of Costcos strategy are low pricing, limited product selection and what the
company calls treasure-hunt merchandising. This has provided significant cost savings to
many members and has these members continuing to return. Other supermarket or retail
stores may have stocked in between 40,000 and 150,000 different products for customers
to choose from. However, Costco will provide members only with 4,000 items to choose
from. Not providing a wide range but offering the most popular products in the market.
While Costco strives to beat the competitions pricing, it also delivers exceptional value in
its high-end offerings and customer service, giving consumers more for their money.
3.- Do you think Jim Sinegal has been an effective CEO? What grades
would you give him in leading the process of crafting and executing
COSTCO's strategy? What support can you offer for these grades?
Yes, Jim Sinegal is an effective CEO and he must get A grade for leading the process of
crafting and executing Costcos strategy. There are various reasons which show that Mr.
Jim Sinegal was responsible to lead the path of strategy effectively.
It is observed that Jim Sinegal had made a transparent and well defined planned path for
the Costco to follow. Also Sinegal created an environment to offer treasure hunt in the
stores and maintain low prices and helps in promoting large volume of store traffic that
helped in building quick turnover of inventory. He was responsible for driving the ability of
the company to achieve yearly sales nearly to $130 million per store. According to the
case study Sinegal had helped the company by spending more time in the stores, checked
out various layouts and communicate with employees to get to know how the things are
going in the company. His tremendous knowledge skills show that he managed the
company excellently in order to achieve high profitability.
4.- What core values or business principles has Jim Sinegal stressed at
Costco?

There were two core values or business principles appear to place out at Costco.
The main business principle activity of Costco is to provide high value to users by offering
global and local tag products at low prices.
It is observed that the human resource management of the Costco was coordinating and
integrating its employees very properly.
It can be seen from the case that comments of Jim Sinegals made it very clear that he
was very committed to capture these values as division of Costcos organization culture.
Jim Sinegal wanted to say that these two principal activities reflected in working
environment of Costco which makes them profitable throughout the world as compared to
other conventional wholesalers and merchandisers.
5.- How well is COstco performing from a financial perspective?
Costco is doing very well financially. Though some of the financial ratios may look good
from a traditional point-of-view, Costco is not a traditional company.
Short term solvency ratios are where they should be. A current ratio of 1:05 shows that
Costco should be able to meet its current liabilities. The acid test of .47 could be better to
ensure that Costco would be able to convert assets into cash more quickly - again to pay
off liabilities. This is probably low due to the amount of real estate that Costco owns.
Profit is increased by not having to store inventory.
6.-Is COSTCO's financial performance superior to that at Sam's Club
and Bj's Wholesale?
The Costcos hold major share of 53% of wholesale club sales across the USA and
Canada, Sams club having roughly 37% and BJs wholesale and several small
competitors have 10% shares. Asset turnover ratio of Sams club and BJs wholesale is
better, as compared to Costcos club because of low prices offered by Costcos club.
Costcos has low profit margin as compared to its competitors but its sales volume and
membership base in strong.
7.- Costco's Expansion outside the US is financially succesful? Why or
why not?
Costcos expansion outside the United Stated is financially successful. Because it shows a
steady growth over years in sales and operating income of Costcos warehouses which are
outside United States. Also data shows a constant and significant share of operating
income of warehouses which are outside of United States in total Costcos Warehouse
operating income. Revenue to number of warehouse ratio is also increasing over period of
time.
8.- How well is COstco performing from a strategic perspective? Does
Costco enjoy a competitive advantage over Sam's CLub? over Bj's

Wholesale? If so, what is the nature of its competitive advantage?

Does Costco have a winning strategy? Why or why not?
The companys current strategy is effective because it is using its strengths for exploring
opportunities, minimizing its weaknesses and avoiding threats. Because of its effective
strategy its market share is continuously increasing and Costcos wholesale enjoy a good
reputation of providing greater value to its customers. Costcos has maintained a strong
loyal members base and it is continuously working for increasing its members.
Costcos enjoys a competitive advantage because of its low prices, greater market share
and reputation of proving greater value to its customers over Sams Club and Bjs
wholesale.
9.- Are COstco prices too low? Why or why not?
Costcos prices are not too low because one of their business strategy is built on low
pricing. In order for Costco to continue to be in the business of wholesale and warehouse
club, they need to have a strategy and sustainable competitive advantage. Every business
understands that customers needs and wants for goods have a cordial relationship to
price. In line with Costcos philosophy, in order to keep members coming in to shop. This
low pricing has made the company experience high sales volume and rapid inventory
turnover. The advantage of this is that they could invest the capital in another area to grow
the company. Maintaining a large operating capital can tie up a companys financial
resources, which can affect the growth of a company.
10.- What do you think of costco's compensation practices? Does it
surprise you that Costco employees apparently are rather wellcompensated?
Costcos compensation packages for its employees are much better that its competitors. It
is one of the principals of Costcos business philosophy and values, to take care of their
employees. Due to good compensation packages for employees and low compensation
packages for executive Costcos enjoys a strong image of responsible corporate citizen. It
makes sense to offer such packages because due to this the employees turnover rate is
very low in Costco. So employees have opportunities to make good career by performing
well in Costcos. This gives Costcos a competitive advantage over its competitors.
11.- What recommendations would you make to Costco top
management regarding how best to sustain the company's growth and
improve its financial performance?
Jim Sinegal is an effective CEO, who plays an active role in companys strategic
management. Increase efficiency and effectiveness of E-commerce activities to increase
sales in both domestic and foreign market. They should maintain their good reputation of
providing greater value to its customers. They should also provide online shopping
opportunities to their customers who are outside from United States and Canada. And
finally they should continue their effective strategies like high compensation to employees,
low prices and reliable quality products etc.