What is Costco’s business model? Is the company’s business model appealing? Why or why not?
Businesses uses a Business Model to demonstrate the specific methods and approaches that are employed to realize revenue as per the business plan (Teece, 2010). Costco, like any other business has its model, which helps it achieve commendable success. The company’s model focuses on generating a high volume of sales and prompt inventory turnover (Gamble et al., 2014). Costco business achieves this by giving much lower prices on the selection of privately labelled and nationally branded products in a scope of stock categories. These products are offered to both gold star and two types’ members.
Costco’s business model is appealing since it provides a standard measure for testing its management to keep inventing new approaches and techniques that allow them catch new members while retaining the old ones. The two-way approach also minimizes the risk of losing discontented members, who may fail to renew their subscription. Thus the business model focuses the company towards quality management.
What are the chief elements of Costco’s strategy? How good is the strategy?
Strategy can be defined as a company’s pre-selected approach for attaining the set objectives while attentively focusing on the future and current outside conditions. Costco Company’s strategy has the following chief elements; Low prices, has less product selection and lines and treasures hunt shopping atmosphere. First, Costco follows cost-leadership, which is excellent since the company can favorably compete with its competitors by maintaining low prices.
Second, limited product lines and selection allows the company to offer 4000 items, while its competitors offer unlimited products. The strategy allows Costco capture new markets for its existing products. Third, the treasure hunt shopping setting provides lesser prices for the products to the members believed to be absent in the subsequent visit. The strategy seduces the maximally utilize the opportunity, which leads the company to make volume sales. Finally, the company does not sell all sizes of products as this could decrease their efficacy.
Do you think Jim Sinegal was 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? How well is Craig Jelinek performing as Sinegal’s successor? Refer to Figure 2.1 in Chapter 2 in developing your answers.
Jim Sinegal was an effective CEO. In his attempt to craft and execute Costco’s strategy, Sinegal led the company from its simple single store to world’s fourth largest retailer company. He established a tactical vision of delivering to Costco’s members’ high quality products and services at lower prices. Sinegal aimed at quick inventory turnover since he believed that such a turnover would enable Costco to make profits at low gross margins compared to its competitors.
Additionally, Sinegal crafted various strategies, which included lowering the prices, limiting the product selection, ensuring a hunt shopping setting. By implementing the strategies, he focused on large purchases, effective distribution, and minimized stock handling at the warehouses. Consequently, Costco’s products sail through low prices and attract more members. Finally, his crafted strategy of maintaining a hunt shopping atmosphere could allow mailing the members of the company, while at the same time targeting new unseen members, which would be projected into volume sales. Therefore, based on the above facts, Sinegal was an effective CEO for the company and I would rate him a good manager.
On the other hand, his successor Craig Jelinek if following the foot prints of Sinegal. The strategies developed by the former CEO of Costco are much esteemed and followed, no wonder the company progressively succeeds in its operations. Today, Costco still holds a top position in the world’s retail businesses ranking.
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What core values or business principles did Jim Sinegal stress at Costco?
Jim Sinegal had a deep meaning for Costco values and lived by them. Today, his grooming mostly includes apparels sold at the company, for instance his socks and shirts. In everything he does, Sinegal takes pride in it and doesn’t hesitate to crown Costco at any point. His heartfelt commitment has immensely contributed to the success achieved by this company. Sinegal has credibly impacted Costco’s business ethics, for instance, he insists that the company must know its customers and understand why they choose to engage in business. He is also convicted each team player must remain focused on business. According to Small Bizz Bee, 2009, Sinegal states that for a business model to succeed, it should not be “be too much to too many”.
Additionally, Jim Sinegal holds unto values that have tremendously influenced Costco Company. Obviously, his values have not impacted the organization without first reaching his employees and influencing them positively. Thus, Sinegal has been a source of motivation to the employees, one of the things that has kept Costco scaling up. Additionally, he not only shaped the employees for his company but also made them efficient for hire by other companies. However, the Costco’s stockholders feel jealous and see it’s a threat since they often think that Sinegal usually treat his employees too good.
Through paying the workers relatively high wages compared to the other companies, the stockholders often think of lack of transparency concerning the profits realized. Additionally, the stockholders believe that the huge amounts of money used to pay employees devalue their stock. The issue has created conflicts severally and criticisms by the stockholders, but all the same, Sinegal remained adamant of the complaints and promises to treat his employees nice.
Based on the data in case Exhibits 1 and 4, is Costco’s financial performance superior to that at Sam’s Club and BJ’s wholesale?
BJ’s wholesale and Sam’s club are efficient stores but Costco Company rides the competition, considering the number of warehouses in its member countries. Costco’s wholesale financial performance can be assessed using the analysis of financial ratio. The financial ratio analysis strategy allows an opportunity to calculate and compare ratios obtained from a company’s financial statements. According to the data provided on current financial statements, Costco’s has a wholesale ratio of 1.07 which indicate its ability to meet t current liabilities. The profitability ratios indicate sales returns, and according to the data, it stands at 1.8% showing a low sales profit margin. The low profit margin explains its strategies for offering commodities at low prices.
Additionally, the Return on Assets is 6% signaling that Costco utilizes its assets in wise manner. Significantly, the Asset turnover ratio stands at 3% indicating company’s efficiency in assets utilization. All these financial ratios explain the financial position of Costco, which is generally good. The company has more than half, 53% share of wholesale club sales throughout Canada and the USA while its competitors Sam’s has about 37% while BJ’s wholesale has about 10% shares (Gamble et al., 2014). Even though Costco’s profit margin is low compared to Sam’s Club and BJ’s wholesale, its sales volume is higher than that of the competitors and also has a strong membership base. Therefore, Costco is performing better than its competitors.
Does the data in case Exhibit 2 indicate that Costco’s expansion outside the U.S. is financially successful? Why or why not?
Costco has spread out of USA, which has amounted to much success. According to the data in case exhibit 2, Costco’s expansion is financially successful, since there has been a steady growth over years. The total sales and warehouse operation income of the branches outside the USA have amounted to the steady growth. Additionally, there has been significant and constant share warehouses operation income of warehouses outside the USA. Finally, the ratio of revenue to number of warehouses is significantly increasing over time.
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 company has been successful and effective in the wholesale industry as seen from business strategies. Primarily, Costco’s members enjoy a limited choice of nationally branded products while selecting privately labeled products from a wide scope of stock categories. The company combines its steady inventory turnover with other warehouse operating efficiencies to conduct business operations at a profit and with lower gross profit margins (Gamble et al., 2014). Consequently, Costco uses the sales volume advantages and quick inventory turnover, hence enjoying early payment discount from stock suppliers. The increased volume of sales and quick inventory turnover allows the company to create enough cash.
For instance, Costco has progressively slowed its cardholder’s growth rate towards end of the year and opening of warehouses in the recent years. The company has a significant competitive advantage over its competitors, BJ’s Wholesale and Sam’s Club in a few stores owned. Currently, the winning and reliable strategy for this company is declining, as seen from the examples mentioned above. Even though Costco has 59% market share, and its strategy well suited for the company’s condition, the declining strategy in growth indicates a loss in competitive power in the industry.
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