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Type Public
Traded as NASDAQ: COST
Industry Retailing (Warehouse club)Establishment Year 1993
Founder James D Sinegal, Jeffrey H. Brotman
Headquarter Issaquah, Washington, U.S.A
No. of Locations Total: 592
United States : 425
Canada: 82
Mexico: 32
United Kingdom: 22
Japan: 9
Taiwan: 8
Korea: 7
Puerto Rico: 4
Australia: 3
Product Merchandise
Private Brands
Revenue $88.915 billion (2011)
Operating Income $2.383 billion (2011)
Net income $1.462 billion (2011)
Employees 147000
Website Costco.com
COSTCO WHOLESALE CORPORATION PROFILE
Mission
“To continually provide its members with quality goods and services at the lowest possible
prices”.
Costco’s mission statement is to focus on bringing high quality goods and services to the market
at the lowest possible prices every day, but to do it with integrity at every level of the company
while valuing the interests of the stakeholders. The mission statement of the Costco is well
understood throughout the organization by the management and employees.
Vision
• “Our business is to give the customer the best value we can.”
– Jim Sinegal, Founder of Costco
• “We're going to be a company that’s on a first-name basis with everyone.”
Strategic Vision
• Give customers the best value, at the best price
• Treat people right, and with respect
Objectives
Employment Objectives:
• Hire great people
• Treat them well
• Give them good jobs
• Do right by them
Management Objectives:
• Always promote from within
• Training happens constantly
• Grow our own talent
• Model what you want from your employees
Business Objectives:
• Don’t try to be too much to too many
• Know on what level you compete
• Know your customers
• Stay focused on your core business
Growth Objectives:
• Run the business for long-term sustainability
• Open new stores
• 50-60 new locations per year
• Keep Internet sales growing
Ethics Objectives:
• Obey the law
• Treat customers right
• Treat employees right
• Treat suppliers right
Business Model:
Business Model is used to exemplify the methods and ways which we used to generate planned
revenue. The Costco’s business model is to generate high sales volume and rapid inventory
turnover by offering low prices on limited selection of national branded and select private-label
products in wide range of merchandise categories. Costco’s offers these products to their
members who are of two types’ business members and gold star members.
Strategy:
Strategy is the organization’s pre selected means or approach to gaining its goals or objectives,
while keeping in view current and future external conditions. Costco’s strategy’s elements are:
Low prices
increase sales and profits
Limited product lines and selection
Treasure hunt shopping environment
By keeping low prices Costco’s is following cost leadership strategy which is good because on
this base they can compete with their competitors. Costco strategy to increase sales and profits
largely depends on some of the key strategic components such as increase the number of new
warehouse, build larger and loyal customers base and finally implement such a merchandising
technique to motivate and attract members to shop at Costco more often and induce volume
purchase per shopping trip. To achieve these strategic objectives, Costco frequently used
business and household merchandise at money-saving prices. Beside this, Costco provides
opportunities to purchase ever changing array of big merchandise at lowest possible prices. And
finally they try to encourage their members to regularly visit Costco so as to not miss out on the
those special best value products offering selections that would otherwise will sold out in a
matter of days. By limited product lines and limited selection they are offering limited 4000
items which are less as compared to its competitors. Costco’s is adopted market development
strategy by capturing new markets for existing products. By treasure hunt shopping environment
they provides such product at low prices to its members which they believe will not be available
in next visit. This works as an incentive and members try to take maximum advantage and
therefore Costco’s sales volume increases. At Costco’s warehouse products are not offered in
every size. The strategy they followed is that by offering every size their efficiency will decrease
therefore it is said intelligent loss of sales.
In the core of their strategy, Costco sells limited numbers of products in fewer varieties to keep
the cost down and they rely on high volume sales. But unlike their competitors they pay well to
their employees. One of the key uniqueness and strength is that they sell membership to their
customers that not only generate the fixed revenue every year but also increase the brand loyalty
and awareness of the customers towards Costco. They advertise very less thereby reducing the
cost by two percent each year.
One of the crucial factors of Costco is their pricing strategy. They have unique way or
mechanism that helps them keep the price lower than that of competitors and they can still afford
to pay 48 percent higher salaries to their employees than their major competitors mainly Wal-
Mart. Their membership base is growing and they are able to retain their customers. Virtually,
they do everything to retain their customers. Most importantly they have very incredible return
policies in hand to attract and retain customers. Furthermore, they try to find the best value pack
for almost every product they sell in their location (store). For example, they have thousand
packet box of Splenda (sugar free sweetener). They generally engage in bigger packages because
they believe that bigger package provides better value and cost savings to their customers.
Costco applies several other strategies to achieve corporate wide price leadership
strategies. For example, to achieve the price leadership they reduce handling and storage cost,
they maintain in-stock positions without being overstocked and transition seasonal merchandise,
they utilize just-in-time principles when ordering merchandise to minimize the cost of inventory,
keep best value pack product to assure low prices through volume buying, expense reduction and
low gross margins etc. in addition to this, Costco doesn’t spent a lot in advertising and use word
of mouth advertising for marketing which is not only one of the cheapest way to advertise but it
is one of the most effective ways of advertisement.
Costco offers their customers with low prices on selected private and a limited selection
of nationally branded products in a wide range of merchandise categories. Businesses and
families can rely on Costco to offer high quality goods and services at everyday low prices.
Rapid inventory turnover, high sales volume per warehouse, leveraging an efficient operating
structure, reduced handling of merchandise, and making themselves the low cost operator in
retail are all key elements that make the company so successful.
Costco’s strategic mission, vision and objective analysis
Costco Wholesale Corporation (Costco), one among the few largest wholesaler giant
differentiates itself applying unique strategies relating to production and operations, and
marketing which make it stand out from the rest of the retailers who are also said to be
competitive in the retailing and wholesaling business globally. Costco is one of the innovative
wholesalers teamed by very dynamic management team and dedicated, motivated and satisfied
workforce with the mission “to continually provide its members the best quality products at the
lowest possible prices”. Some of the fundamental principle of the Costco is that they obey the
law, they take care of their members, they take care of their employees, they respect their
suppliers, and finally they reward their shareholders.
Some of the reasons how Costco can serve those highest quality goods of national brands for the
lowest possible prices is that they eliminate different cost associated with delivery expenditures,
account receivable, inventory, sales people, and fancy buildings. And they successfully operate
themselves in the competitive environment serving not only individual customers but also a legal
customers, and small business customers.
Costco believe that society and the community is one of the key factors of their success.
Therefore, they are willing to give back to their community and the society in terms of quality
goods in lowest possible prices. Not only this but also, Costco encouraged its employees to
actively participate in the social welfare program by volunteering in every possible occasions in
the locality wherever they are located.
SWOC Analysis:
SWOC stands for strength, weaknesses, opportunities and challenges. It is a situational analysis
in which internal strength and weaknesses of an organization, and external opportunities and
threats faced by it are analyzed to devise a strategy. Analysis of Costco’s Wholesale is as
follows:
Strengths:
Largest market share
Lowest prices
Low overhead expenses
Strong reputation of providing greater value
Satisfied and talented human resource
Loyal and affluent customer base
High inventory turnover
Weaknesses:
Comparatively less attractive store layout for luxury items.
Weak advertisement base leading to the inability of reaching full range of membership
base.
Declining or inconsistent profit margin.
Low geographical expansion.
Locations are not that much attractive.
No self checkout.
Primary focus on business customer than individual customer.
Opportunities:
Operation is mainly targeted in countries which have high GDP and high disposable
income with low inflation rate.
Serve the democratic countries with political and governmental stability.
Rapid growth in membership.
Possibility of international expansion.
Advantage of economic downturn.
Increasing brand awareness.
Positive image in terms of employees pay and social responsibility.
Challenges:
Cannot attract people who are below poverty line due to it’s membership fees and bulk
purchase.
Low geographical diversification.
High competition from Sams’s Club and BJ.
Highly dependent on U.S.A and Canadian market.
Largely dependent on vendors for timely supply of quality merchandise at reasonable
price.
High market expectation in terms of price quality and financial performance.
COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data)
(unaudited)
16 Weeks Ended 52 Weeks
Ended
------------------------
------------------------
August 28, August 29, August 28,
August 29,
2011 2010 2011
2010
----------- ----------- -----------
-----------
REVENUE
Net sales $ 27,588 $ 23,592 $ 87,048 $
76,255
Membership fees 590 533 1,867
1,691
----------- ----------- -----------
-----------
Total revenue 28,178 24,125 88,915
77,946
OPERATING EXPENSES
Merchandise costs 24,680 21,024 77,739
67,995
Selling, general and
administrative 2,712 2,401 8,682
7,840
Preopening expenses 22 9 46
26
Provision for impaired
assets and closing
costs, net. 2 3 9
8
----------- ----------- -----------
-----------
Operating income 762 688 2,439
2,077
OTHER INCOME (EXPENSE)
Interest expense (36) (34) (116)
(111)
Interest income and
other, net 46 30 60
88
----------- ----------- -----------
-----------
INCOME BEFORE INCOME
TAXES 772 684 2,383
2,054
Provision for income
taxes 272 247 841
731
----------- ----------- -----------
-----------
Net income including
noncontrolling
interests 500 437 1,542
1,323
Net income attributable
to noncontrolling
interests (22) (5) (80)
(20)
----------- ----------- -----------
-----------
NET INCOME ATTRIBUTABLE
TO COSTCO $ 478 $ 432 $ 1,462 $
1,303
=========== =========== ===========
===========
NET INCOME PER COMMON
SHARE ATTRIBUTABLE TO
COSTCO:
Basic $ 1.09 $ 0.99 $ 3.35 $
2.97
=========== =========== ===========
===========
Diluted $ 1.08 $ 0.97 $ 3.30 $
2.92
=========== =========== ===========
===========
Shares used in
calculation (000's)
Basic 436,596 437,071 436,119
438,611
Diluted 443,518 444,289 443,094
445,970
Dividends per share $ 0.240 $ 0.205 $ 0.890 $
0.770
COSTCO WHOLESALE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
(unaudited)
Subject to Reclassifications
August 28,
August 29,
2011
2010
------------
------------
ASSETS
Cash and cash equivalents $ 4,009 $
3,214
Short-term investments 1,604
1,535
Receivables, net 965
884
Merchandise inventories 6,638
5,638
Deferred income taxes and other current assets 490
437
------------
------------
Total current assets 13,706
11,708
Property and equipment, net 12,432
11,314
Other assets 623
793
------------
------------
TOTAL ASSETS $ 26,761 $
23,815
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============
LIABILITIES AND EQUITY
Short-term borrowings and current portion of long-
term debt $ 900 $
26
Accounts payable 6,544
5,947
Other current liabilities 4,606
4,090
------------
------------
Total current liabilities 12,050
10,063
Long-term debt, excluding current portion 1,253
2,141
Deferred income taxes and other liabilities 885
681
------------
------------
Total liabilities 14,188
12,885
------------
------------
Total Costco stockholders' equity 12,002
10,829
Noncontrolling interests 571
101
------------
------------
Total equity 12,573
10,930
------------
------------
TOTAL LIABILITIES AND EQUITY $ 26,761 $
23,815
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