Group Members: Nureen Bano Saima Fazal Syed Yasir Husnain Rizvi

BUSINESS STRATEGY DIAMOND

Staging Arenas Arenas Speed of expansion 1983:First Costco warehouse Private labels & national brands 1984 :9 stores in 5 States serving Individual members & small more than 200,000 members business owners 1985:Publicly owned company 40 States, UK, Japan, Korea etc 1993: merges with Price club to Economic Wholesaler & Distributors Staging Vehicles form Price/Costco, Inc. logic 1997: Costco Corporation Inc. 1998: The Costco.com Economic logic 1999:Costco Wholesale Lowest costs through large scale Corporation. advantages 2001:The B2B Web site. Differentiators Direct purchasing/Bulk purchasing 2008:Owned the land & Building No frills Sequence of initiatives Minimal cost due to rapid inventory Membership cards turnover Treasure Hunt merchandise Differentiators High sales due to lower cost Vehicles purchases Lower price seller Company owned stores Partnership with Jeff Very low Pricing Selling shares to public & raising Warehouse in Mexico No frills focus on service additional capital operated in a Joint venture High speed to market Membership card fee New stores & web site launch Treasure Hunt merchandise Kirkland signature Limited product range that Costco merged with Price covers broad spectrum Club

The appealing Business model depends on high sales volume along with: Rapid turnover Inventory
Rapidly turning over inventory Pay suppliers before the due invoice Early payment discounts Frees up capital allows Costco to finance new inventory purchases with supplier payment terms Passes these savings on to consumers in the form of low prices. No requirement to maintain high levels of working capital or take out loans, with interest to pay suppliers.
Operating Efficiencies
Uniquely handlings of Merchandise Direct arrival of merchandise from warehouse to the sales floor of the store Which reduces labor requirement for merchandise handling and stocking.

High Productivity Offering of different attractive packages like Treasure Hunt Merchandise Emphasizing on internal customers like employees and suppliers According to Jim Sinegal The more people make the better lives they are going to have and the better customer they are going to be. Direct Purchasing Directly purchasing from the manufacturers creates bulk packaging at cheaper price Saving cost linked with handling those products.

The first phase is to develop a strategic vision for the company. Sometimes a company doesnt state its strategic vision clearly, like Costco does. But it has company values or philosophy that is implemented on its performance. Costcos philosophy was to keep customers coming to shop by wowing them with low prices.

Company determines the steps to take in order to reach its vision and sets specific, measurable goals accordingly. Costco wants to provide the lowest-price to the customers and keep the customer coming back to shop:

Net Sales Growth

2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 $31,621 $37,993 $47,146 $51,862 $58,963

Low Pricing Limited Product selection Treasure-Hunt merchandising Marketing and Advertising No need to spend on advertising and sales promotion incentive Direct mail to members Growth Strategy

Major elements

Open new warehouses Build an ever larger and intensely loyal membership base Employee well executed merchandise technique to attract more customers

Web Site Sales

Two websites to cater for customers who cant come to store Digital photo processing

Philosophy, value and code ethics

Obey the law Respect of all public officials and their position Comply with safety and security standard for all product sold, etc.

Take care of the members

Take care of the employees

competitive wages

Provide top-quality products at the best prices in the market Provide high-quality, and wholesome food products

Respect the suppliers Reward the shareholders: Good return

Create benefits A safe and healthy work environment Challenging and fun work Career opportunities, etc

Costco proved that the strategies was work, it looks from the loyalty of employees and customers, financial growth, warehouse expansion in other countries. Jim Sanegals personal involvement in operational activities monitoring and evaluation.

Profitability Ratios Liquidity Ratios Leverage Ratios Activity Ratios Other important financial measures

Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Assets Return on Stockholder's Equity Earnings per Share

2008 2007 2006 2005 2000 0.1053 0.1052 0.1055 0.1063 0.1043 0.028 0.026 0.028 0.028 0.033 0.018 0.017 0.019 0.02 0.02 0.062 0.055 0.063 0.064 0.073 0.14 0.13 0.12 0.12 0.15 2.9 2.4 2.3 2.2 1.3

Consistent GPM, OPM, and NPM show the operating efficiency of the company. ROA: The decreasing ratio is an indicator that one or both of the component parts is in difficulty. ROE: Costco is showing unstable trend in this area. It was really high in 2000 then it shows the downward trend but it is getting stable again. EPS: Costcos earning per share ratio is indicating a constant growth of company.

Current ratio Quick ratio Working capital

2008 1.06 0.5 588

2007 1.08 0.5 742

2006 1.05 0.4 413

2005 1.21 0.6 1477

2000 1.01 0.3 66

Current ratio: As CR is greater than 1, which indicates that there are sufficient assets available to pay liabilities. So Costco is doing well in this regard. Quick Ratio: Costcos quick ratio is showing a downward trend means company relies too much on inventory or other assets to pay its short-term liabilities. Working capitals: Positive working capital means that the business is able to pay off its short-term liabilities. Also, a high working capital can be a signal that the company might be able to expand its operations.

Debt to asset ratio long-term debt to capital ratio debt to equity ratio coverage ratio

2008 0.113 0.107 2.251 20.408

2007 0.11 0.108 2.274 27.719

2006 0.015 0.012 1.913 135.692

2005 0.046 0.043 1.859 46.559

2000 0.093 0.091 2.036 27.974

D/A Ratio: The increasing ratio indicates that the firm will be facing potential problems in paying its debt; in case of they have to sell out their assets to pay their debts. Long-term debt to capital Ratio: indicates the portion of companys asset that is financed with long term debt. This ratio is also increasing with the period of time but as it is related to the long term creditors so it is less risky. D/E Ratio: The ratio is continuously increasing that shows the liabilities exceed the net worth and the creditors have more stake than the share owners. Coverage Ratio:There is uneven situation in this ratio but if we compare the ratio of 2000 with 2008 we can see that the company is lacking at this point.

days of inventory inventory turnover average collection period

2008 28.5 12.81 44.9

2007 30.5 11.96 47.04

2006 29.7 12.3 45.1

2005 25.6 14.25 35.8

2000 32.1 11.37 39.3

Days of inventory: The reducing trend is in favor and shows frequent sales. Inventory turnover ratio: Figures indicate the rapidity with which the Costco is able to move its merchandise, showing stable position in this regard. Avg Collection period: The figure indicates the effectiveness of the Costcos credit control department in collecting money outstanding. So increase trend shows efficient credit control.

To compare the financial performance of three companies we have used data of 2007 (because only that was available for all the three companies) When we want to compare the financial analysis of different companies we do vertical analysis, where we take sales as a base and compare all other as the percentage of sales to have a clear idea of the companys growth.
Sales operating income

COSTCO 63088 1609

SAM'S CLUB 44357 1618

BJ'S 8815 195

The results clearly show that Sams club is more efficient in all the three companies. They are generating high operating income means they have lowest operating expenses and efficient management of inventory.

Operating Income in Percentages

United state
2008 2007 2006 2005 79 80 81 81

Canadian
15 14 14 13

Other
7 6 6 6

Total
100 100 100 100

Sales Generation in Percentages

United state 2008 2007 2006 2005 71 76 77 79 Canadian 21 18 18 16 Other 8 7 5 4 Total 100 100 100 100

Above tables shows that Canada have the largest contribution in companys total, other than United State. So expansion in Canada seems to be the good decision but other warehouses are not generating high and are financially not that much profitable.

Strategic Performance: Successful acquisition of new members and retention of new members. Costco is also growing its warehouse network. Financial results shows the fitness of Costco strategies over BJs and Sams club About 75% more than the $75 million per store average at Sams club. Costco has close to a 53% share of warehouse club sales across the US and Canada, Sams club having roughly a 37% share BJs whole sale and several small warehouses club competitors about a 10%.

Costco has two competitive advantages over Sams club and BJs warehouse. Cost leadership: is achieved by offering lowest possible price through direct purchasing, bulk purchasing, and operational efficiencies and offering valued product Differentiation: Costco is enjoying differentiation competitive advantage by offering treasure hunt merchandise which captures the attention of members every time they shop.

Expansion with its profitability Value to customers and low prices According to Jim Sinegal we are very good merchant and we offer value. The traditional retailer will say I am selling this for $ 10. I wonder whether he can get $10.50 or $ 11. We say we are selling this for $9. How do we get it down to $8? we understand that our members dont come and shop with us because of window displays or the Santa Claus. They come and shop with us because we offer great value.

Costco offers lower price as compare to its main competitor Sams club and BJs. Lower prices is the resultant of overall cost leadership strategy of Costco. Attracting its member by keeping prices lower than all the competitors in the market. Costco has identified that in-spite of selling product at higher to the members, it should sell more products (in bulk) by keeping prices comparatively low in the market.

Costcos philosophy was to keep members coming in to shop by wowing them with low prices.

Costco is paying more to its employees as compare the Wal-Mart/Sams club. Wal-Mart is offering lower wage and a skimpier benefit package. Jim Sinegal was convinced that having a well compensated work force is very important to execute Costco strategy successfully. To take care of the employees is one of the principles of Costcos business philosophy and values. Paying good wage and keeping your people working with you is very good business (Jim). Costco offers good wage and good career which resulting in reducing employees turnover, reduces the cost of advertising, training and hiring. Thus Costco have satisfied and loyal employees, working with full dedication and enthusiasm as they know that efficiency do not come at the cost of workers expense.

Employees have the right to good wages and good career. We pay high wages, it must mean we get better productivity. The more people make, the better lives they are going to have and better consumer they are going to be.

Persist to honor their business philosophy value and code of ethics. Could offer a wider range of merchandising Instituting new payment techniques Accepting manufactures coupon Being open longer hours than competitors. Geographic expansion outside United State and Canada . Need to identify the reasons that why the same strategies are not doing well in out side the US and Canada and improved strategies should be formulated according to the changed circumstances and requirements. More online opportunities to members of with in and outside United State and Canada. This way they can expand their business and will reach maximum number of customers that will ultimately help them to have better financial performance.