Costco ppt

Creative Exposure
Consulting, LLC

Mission, Business Model, & Strategy

Introduction
 Founded in 1983
 Fourth largest retailer in the U.S.
 As of 2010, 573 warehouses in 40 states and 7 countries
 Fastest growing company in the history among
American businesses

Creative Exposure Consulting

Costco
 Only company to achieve $6 billion in sales from zero in six
years
 Founder Jim Sinegal coined as the inventor of the wholesale
Club concept
 Philosophy is to “keep members coming in to shop by wowing
them with low prices.”
 Does not engage in extensive advertisements or sale
campaigns
 Five Guiding Principles
 Obey the law
 Take care of members
 Take care of employees
 Respect suppliers
 Reward shareholders


Product Diversification
 Core - Costco Wholesale
 Warehouse Clubs and Superstores
 Premium private-label products
 Core - Costco Business Centers
 Cross business strategic fit: formula 1+1=3

 Specialty - Consumer Services
 Travel
 Optical
 Automotive
 Financial Services
 401(K)
 Loans
 Insurance
 Pharmacy
 Recycle electronics


Business Model
 Low Cost/Low Price

Limited selection of top quality merchandise
Wide range merchandise categories
“Treasure Hunt” shopping environment
No frills, self-service warehouse
Rapid inventory turnover
Volume purchasing
Operating efficiencies


Business Model
Low prices Volume purchasing

Limited selection of quality merchandise Efficient distribution

Reduced handling of merchandise
+Wide range of merchandise categories
+No-frills, self-service warehouse
Rapid inventory turnover
Operating efficiencies

Rapid inventory turnover

+Operating efficiencies Plus Membership Fees

Profit at a low gross margin (8%-14%)


Business Model Analysis
 Is Costco’s business model appealing?
 Evaluation matrix based on:
 Customer satisfaction – Ranked chief among competitors
 Out-competing rivals – Ranked 4th among competitors
 Response to changing market conditions – One stop shop trends,
Unique rotating merchandise, understanding affluent shopper
spending behavior
 Achieving financial/strategic objectives – Progressively
demonstrates membership growth and net gains each year
 Comparison to competitors – Differentiated, Industry leader
 Are Costco’s prices too low?
 Not as of today, but could prove to be a problem in the future,
especially in foreign markets due to currency value


Competitive Advantage
 Building core competencies and competitive
capabilities
Finding and negotiating bargains
On quality merchandise
Building relationships with
Manufacturers
Suppliers
Ingenuity
Cost cutting
Conservation
 Human Resources
Employing the best talent


Costco vs. Competitors
Last trade: $0.00 $0.00


Costco vs. Wal-Mart
Pricesmart Inc.
Higher P
Operating Margin

Sam’s
Club

Costco
BJ’s

Lower

Few Many
Number of
Locations
Note: Circles are drawn roughly proportional to the sizes of the club chains based on
revenue

2008 Performance
FY 2008 Costco vs. Competitors

Net Comparable
Revenue Income Operating Store Sales
Company (Billions) (Billions) Margin (Decline) Locations
Costco $70.9 $1.3 2.7% 6.0% 512
Sam's Club $46.8 N/A 3.4% 4.8% 602

BJ's Wholesale
Club $10.0 $2.3 2.3% 9.4% 180


Rivals’ Next Strategic Moves
 More stores in foreign markets
 Facing market saturation in U.S.
 cannibalization

 Copy Costco
 Sam’s Club opens first Business Centers
 July 22, 2008


SWOT Analysis
Strengths Weaknesses
S  Low Prices W  Burden of high wages
 Strong Brand paid to workers
 CEO’s retirement
 Operating  Low price margins
Efficiency  E-commerce activities
 Exceptional  Small Marketing
Workforce budget compared to
 Strong membership discount retailers and
Opportunities Threats Markets
Super
O  Appeal to
T
 Aggressive price
conscientious shopper competition by rivals
 Expand into foreign
 Political
stable markets
complications in
 Mergers & Acquisitions foreign markets
 Massive supplier pool
 Cannibalization


Strategic Performance


Financial Performance


Acquiring New Members

7.3% increase 1999 & Before


Winning Strategy - YES
Weighted Factors
Factor Strategy/Performance Score/Weight

Well-matched Offensive strategy –Low cost, low 100%/30%
price, First Mover (i.e. Business Center,
Greening Warehouses)

Competitive Advantage Best cost provider—top quality at 100%/30%
lowest price, distribution efficiency,
strategic alliances & partnerships,
ingenuity/innovation via EFIM
technology.

Sustained performance From 2000 – 2004 net sales increased by 100%/40%
45%, 2010 SEC Filings reported net
sales increased 9.1% from the prior year
to $76,255, driven by a 7% increase in
comparable sales, membership fees
increased 8.4%, due to new
membership sign-ups and increased
penetration of the higher-fee Executive
Membership program. Stock price

Performance Total Outstanding performance 100/100


Strategic Issues
Remain focused on core business
Maintain First Mover Status
Increase internationalization
opportunities


Recommendations
 Target Jim Sinegel’s replacement as CEO in an effort to
preserve corporate culture
 Increase efficiency and effectiveness of E-commerce
activities to increase sales in both domestic and foreign
markets
 Acquire BJ in an effort to gain 180 stores and acquire R&D,
talented employees, and loyal customers
 Results warrant…
 Increase market share and business footprint
 Ability to capture new customers resulting in membership growth
 Attain BJ’s competences to streamline processes
 Gain market presence in areas not currently located in(i.e.
clustered club locations)


Recommendations
 Are recommendations aligned with company
growth strategy? Yes
 Sales and Profit Growth Strategy
 Open more new warehouses
 Build an even larger and more fiercely loyal membership
base
 Employ well executed merchandise techniques


Questions

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