Costco

1.

Costco’s model is based on a best cost strategy. They take the low cost provider way of thinking and join that with making value for the stakeholders by focusing on excellent customer service, a strict code of ethics, treating employees well, and a good relationship with suppliers. They have made unique cost saving strategies in their production, operations, and marketing, which has let them attract the most customers in discount retailing. The focus of their business model revolved around high sales volumes and fast inventory turnover by letting fee paying members have low prices on a smaller selection of goods which consist of a mixture of nationally branded and selected private-label products in a wide range of merchandise categories.

This is a good business model as it allows the ability to operate profitably at lower gross margins by securing vendor volume purchasing agreements, efficient distribution, self-service warehouse facilities, and supplemental membership fee profit. Another feature is the high sales volume and rapid inventory turnover design of this business model, the accelerated cash conversion cycle permitted Costco to collect the funds for inventory prior to vendor payables becoming due. This helped for vendor financing and the ability to take advantage of early payments discounts which reduced operating cost. Because of the success of this type business model, from 2008 through 2011, Costco increased the number of warehouses by around 15.6%, revenue by 22.6%, and net income 14.0%.

2.

Chief elements of Costco’s Strategy are ultra low prices, limited selection, a scattered shopping environment, low operating costs, and geographic expansion that has gained exposure to larger population of customers. Over the years they consistently raise net sales and memberships. No one could deny how successful Costco has been when looking at their balance sheet.

3.

Mr. Senegal is a very good CEO. He took the membership concept from Price club...