Costco Case Analysis

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Costco Companies Inc. – Case Analysis * Karthik Sundar (668943916)
EXECUTIVE SUMMARY
Costco is a membership only club warehouse giant that operates globally. Most of its business is concentrated in the United States with its presence in a majority of the states. It is currently having good business figures of 115 Billion dollars in revenue and a net income of 15.3 Billion dollars. The following is a case study of the hurdles faced by the management at Costco during the period of 1998 when they had come up with a new venture of offering services to its customers.
Costco’s sales driver is the fact that it sell a bulk of its products at very low margin to its customers. It is able to do so as it has a large inventory at each warehouse and operational costs aren’t very high. Despite having a large inventory, it has a high number of inventory turns at each of its inventories. Such operational efficiency helps them offer products at great prices to its customers. This value offered attracts a lot of small business and general public. Costco’s customers are a good mix of such business and general customers from the public. It operates on an exclusive membership with a member enrollment fee of 40$ during the period of this case (55$ currently). Major revenue generators are food and sundries amounting to about 60% of the sales at Costco. It has a good business model of operating at good efficiency, competitive pricing, commitment to the quality and great employee focus. A combination of all these factors make Costco the most successful club warehouse.
Because of its famous operating model, the management at Costco hadn’t had to look at prioritizing their marketing needs. Although Costco is a leader in the club warehouse segment, they hadn’t ventured into offering services to its loyal customers. Since the customer retentivity rate at Costco is high at over 90%, the…...

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