Costco Analysis

The business model of Costco is to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories. This business model is very appealing to the company’s customers and vendors. This is made evident by the sales over the years as well as the information provided in the case study about how Costco is able to a lot of the time pay vendors at a later date. For customers it allows them to purchase products at wholesale prices.

With regards to Costco’s strategy, it relies on three cornerstones. They are low prices, a limited product line and limited selection, and a “treasure hunt” shopping environment. Costco prices top quality national and regional brands usually below wholesale prices. This allowed for them to gain the trust of their members. The limited product and selection is evident with the number of items that Costco provides compared to typical supermarkets. The case states that only 4,000 items are provided and those items cover a broad range from food items to items for automobiles. To enhance the shopping environment, the 4,000 items that Costco provides is constantly changing, so many of their members are always on the lookout for items that only might be around for a short period of time, thus becoming like a treasure hunt.

As a CEO, Jim Sinegal is very effective. This is supported by how he is received when he’s visiting any of the Costco stores. Looking over the background of the company and how it got its start, you can see the initial potential that Jim showed in taking everything that he learned through his previous jobs, started his own company, merged with a former employer chain Price club, and then became CEO. The grade that I would give him would be an A-. Sinegal has created a strategy and executed it with great success but the reasoning behind this grade is that there is always room for...