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Category: Business and Industry
Date Submitted: 07/08/2012 04:02 AM
Nile University EMBA Program
Case Study Costco Wholesale Corporation Financial Statement Analysis
Q1: What are the chief elements of Costco’s strategy?
In terms of sales, Costco was the largest wholesale club chain in the United States (Although being smaller than Sam’s Club in numbers of warehouses). To achieve this, Costco’s strategy relied on several elements: • • • • • Targeting wealthier clients of business owners and middle class shoppers. Offering the best value to customers by delivering the lower per unit price. To stick to this concept, they refused to mark up products more than 14% over distributor price (compared to 25% - 40% in regular retailers) They were able to do this by selling in bulks, limiting brands selections in the same product line, and reducing operating expenses to minimum. Bulk packaging was used only as a means of reducing unit price offered to customer. Costco had a policy of not increasing packaging size unless it resulted in lowering per unit cost to customer. • • Delivering higher savings to member customers, Costco was able to increase membership fees over time as well as increase the number of members. Costco expanded its selection of name brand products, added ancillary products and added variety of services at its centers. This was to offer more value to customers, attract more members, increase the number of visits per member in the year and increase sales per customer which will eventually increase sales per store. • • Costco paid great attention to improving operating efficiency. Operating expenses were reduced to minimum by perfecting several methodologies to avoid all types of inefficiencies. Examples for this are: Using no frills warehouse facilities (to reduce capital expenses) Using forklift to deliver pallets directly onto warehouse floors instead of arranging items on shelves (reducing labor cost)
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Cross-docking transportation system to reduce transportation costs to a minimum.
It is noticed also...