Balwinder Kalra

Task detail Your client wants to research on Costco model of business and understand their modus operandi. COSTCO Wholesale Business model and practices Table of Contents • About COSTCO • COSTCO - Annual Revenue & Growth • COSTCO - Business Strategy • COSTCO - Benefits of Membership • COSTCO - Business Strategy • COSTCO - Business Strengths • COSTCO - Business Weaknesses & Risks • COSTCO - Business Opportunities • COSTCO - Competitors • Source of information About COSTCO Costco is a membership warehouse chain, dedicated to bringing its members the best reasonable prices on quality brand-name goods. Costco has hundreds of locations worldwide, it provides a wide selection of merchandise, specialty departments, and exclusive member services, all designed to make the customers’ shopping experience a pleasing experience. The variety of array offered by Costco are apparel, electronics, furniture, jewelry, optical glasses, and a large selection of food, beverage, and household supplies. Costco is known for carrying top-quality national and regional brands, with a 100% satisfaction guarantee. Members also can shop for private label Kirkland Signature™ products, designed to be of equal or better quality than national brands, including juice, cookies, coffee, housewares, luggage, clothing, and detergent. COSTCO - Annual Revenue & Growth 2009 $71.42B 2013 $105.16B 2017 $129.02B 2010 $77.95B 2014 $112.64B 2018 $141.58B 2011 $88.92B 2015 $116.20B 2019 $152.70B 2012 $99.14B 2016 $118.72B 2020 $166.76B 2021 $195.93B COSTCO - Business Strategy COSTCO offers 2 annual membership subscriptions to its customers. You will require a membership card to shop at a COSTCO warehouse/ store. Below are the membership options available. Business membership - $60 Gold Star membership - $60 Business Executive membership - $120 Gold Star Executive Membership - $120 COSTCO - Benefits of Membership Each member of COSTCO can issue a free supplementary (COSTCO cash card) to its family member or business colleague. This way the other issuer can also shop at the COSTCO warehouse without an actual membership card. With the membership, the customers get access to the best-discounted products as compared to Walmart, Target, and Amazon.com. Members shop frequently to recover their annual membership fees from the savings. The increased demand drives COSTCO to purchase more goods from the suppliers. This will keep the cycle ongoing to offer better prices to the consumers and to stay in the business. COSTCO - Business Strategy ● COSTCO focuses on the inventory of those goods that are of high sales volume and gives rapid turnover as they will be purchased by the customers often. ● The higher sales turnover helps COSTCO to gain an upper hand while negotiating with the suppliers. ● With the quick conversion cycle of cash, COSTCO gets another 2% discount on the next purchase with the supplier as they will clear the purchase invoice within 10 days. ● COSTCO focuses on Cost Leadership Strategy. It directly purchases from the source in the bulk to cut out the middleman commission and offer those discounts to the customers. ● It allows customers to carry their own bags at the store and allow them to use empty merchandise boxes to reduce the additional cost of packaging ● Providing great discounts for membership-only access, it encourages other customers as well to get an annual subscription which results in revenue generation when the customer renews their membership. In 2021, COSTCO generated $3.9 billion in revenue through the renewals. COSTCO - Business Strengths ● COSTCO offers attractive lower prices on the goods as compared to its competitors. ● The high sales volume results in high operating efficiency which keeps the cycle ongoing. ● As the customers get an attractive discount on the goods, their customer retention is great and it also results in customer loyalty. ● By providing great discounts to membership-only access, it encourages other customers as well to get an annual subscription which increases its customer faction. ● The strategy is to keep an inventory of those goods which have high sales volume and demand resulting in great inventory turnover to contribute to higher revenue. COSTCO - Business Weaknesses & Risks ● The warehouse club membership business model has contributed a great to the revenue generation of the company, however, this limits the non-member consumers welcomed at Costco stores. ● The high sales volume of goods at a great discount is a wonderful strategy, however, there is a larger category of goods that consumers may look for and they need to choose competitors to shop at them. ● The e-commerce business could be a threat. Currently, they are unable to match the price and discounts offered by COSTCO and it also involves shipment duration of the item. However, giant businesses with strong financials can compete by offering better prices in the future. COSTCO - Business Opportunities ● COSTCO is yet to explore the developing Asian countries which can be a really good target for the business considering the number of consumers will be much higher than the current US market. ● COSTCO has a scope to increase the variety of goods in its inventory to improve the attractiveness of COSTCO stores and to target the variety of customers as per their requirements or goods. COSTCO - Competitors Discount stores or warehouses are one of the fastest-growing retail sectors. For Costco, this is a good thing for sales, however it also means the competition for a significant market share is becoming more fierce. The significant competitors of COSCTO are: ● Amazon.com ● Walmart ● Target Following slides will show the statistics comparing COSTCO with its competitors. COSTCO - Competitors COSTCO - Competitors COSTCO - Competitors Source of information • Source 1 • Source 2 • Source 3 • Source 4 • Source 5