Costco Case Study

Memo

To: Chief Operating Officer, Costco Wholesale

From: Mike Dorzweiler, Senior Consultant, ABC Consultant Company

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Date: March 28, 2016

Introduction:

The following is a situation analysis for Costco Wholesale. Key issues are noted and recommendations are provided.

Current Situation:

Jim Sinegal and Jeff Brotman founded Costco Wholesale in 1983 the same year Walmart launched its membership warehouse venture Sam’s Club. Jim brought with him several years of warehouse merchandising experience having worked for Sol Price’s Price Club in San Diego, CA and managing one of the most successful stores. Sol Price was a pioneer in developing the discount warehouse membership concept and Jim learned much of the business from him. Jeff Brotman was a Seattle-based entrepreneur who helped provide the capital necessary to get Costco started. Costco’s mission is “to continually provide members with quality goods and services at the lowest possible prices.” This mission is directly linked to its business model and strategy. Costco’s mission emphasizes quality and cost leadership, which are factors consumers usually look for in the retail market. Costco’s target customers are businesses and middle-income consumers.

The centerpiece of Costco’s business model entails generating high-volume sales and rapid inventory turnover by offering fee-paying members low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories. When combined with low-operating costs achieved by volume purchasing, efficient distribution, reduced handling of merchandise and no-frills self-service warehouse shopping Costo is able to generate significantly greater profits than traditional wholesalers, mass-merchandisers, supermarkets, and supercenters. In 2011, Costco generated roughly 88 billion dollars in revenue and reported a net income of nearly 1.4 billion dollars. Costco...