Report On Costco’S Strategy, Business Model, Corporate Culture And Responsibilities

The aim of this paper is to study Costco’s current strategy, business model, internal operation and execution plan, corporate culture, and responsibilities. This report uses great analysis tools such as PESTEL Analysis, 5 Force Model, Driving Forces Analysis, Strategic Group Map, and Key Success Factors to find whether or not the industry provides the chance to grow for the company. The evaluation of Costco’s internal environment through financial ratios, VRIN test, value chain analysis, competitive strength, and SWOT analysis is the next vital step during this paper. This report is referenced to reliable resources and materials and supported by secondary data.

Costco was founded by Jim Sinegal in 1983 from an enterprise startup company and after 28 years evolved into the third largest retail company in the U.S. and achieved the seventh-largest rank within the world and undoubted leader of discounting warehouse in North America. Back in 1976, the membership warehouse for the discount merchandising had been introduced by Sol Price in the first Price Club. Price Club membership initially was granted to small businesses to obtain their merchandise at an economical price but soon it was offered to individuals as well after Price understood it can be profitable as a result of an increase in the sales volume. (Thompson, A., page C-26)

Sinegal started working for Price in the original store as a manager when it was not profitable at that time. Sinegal had a talent finding flaws in the way business was done: either being wrong in price spot or in merchandising category and soon made back the store to a profitable one. Over the years working with Price, Sinegal developed his knowledge by absorbing his mentor’s subtleties in keeping the variable and overhead costs low, warehousing the items with high turnover, and charging the buyers with very low prices. After that, he left the Price Club and opened the first Costco store in Seattle with Jeff Brotman who is currently Costco’s chair of the board of directors. In 1984 Costco expanded to 9 stores and a year after it became a public company and the first-ever company in the state that achieved $1 billion in revenue within six years. Costco and Price Club merged together in 1993 with 206 PriceCostco stores with a revenue of $16B in total. In 1997 the merged companies’ name changed to Costco Companies Inc., and in August 1999 it changed to Costco Wholesale Corporation with the headquarter in Issaquah, Washington. (Thompson, A., page C-27)

Currently, Costco has 768 warehouses worldwide, and this company additionally operates e-commerce sites within the U.S., Canada, the UK, Mexico, Korea, and Taiwan. ( Costco's Annual report, 2018)

Mission

Costco’s mission in the warehouse business has been stated “To continually provide our members with quality goods and services at the lowest possible prices”, by many documents but in the “Letter to Shareholders” there is a more expensive view of Costco’s mission stating: Costco aims to provide high-quality services and goods while maintaining it's signature low price. Costco does so without sacrificing customer service by adhering to ethics that ensure the most respect for shareholders, employees as well as suppliers. (Thompson, A., page C-28)

“Reasonable prices”: Through competitive pricing, Costco has not only won the reputation of being affordable but also influenced prices throughout the market. Aside from this, the company offers a membership program. “Quality goods and services”: The Costco brand is synonymous with quality goods and services. This has been the key marketing approach operated by the firm since 1983. Ideally, that has given the firm a competitive edge over several different merchandising corporations that have since emerged. In fact, the return policy confirms the firm’s confidence in the quality of its products, as it targets the high level of satisfaction of all its shoppers. (Mission Statement Academy, 2019)

Vision

The implied vision statement of the company is to be “a place where efficient buying and operating practices give members access to unmatched savings.” The vision statement outlines certain key points regarding Costco: economical operations, incomparable savings, and connect by membership effectively showing Costco’s need to guarantee members’ satisfaction, resulting in price reductions that fulfill of company’s mission of unique savings. (Panmore Institute, 2019)

Values

Jim Sinegal instilled five business practices into Costco’s culture and its method of operation:

1. “Obey the law”—Costco must operate within the boundaries of the law. It does so by pledging to: agreement with all laws, comply with regulatory officials, conformity with accepted safety and security principles, satisfy the law of wage and salaries, conduct business with foreign countries while abiding by foreign and US law, and avoid any and all forms of bribery.
2. “Take care of our members”—Costco has granted its membership to businesses as well as individuals. Because, now more than ever, there are so many other options for Costco clients, it is of utmost importance for Costco to keep the trust of their members. It does so by pledging to: provide high-quality products at the best price, ensure that suppliers are matched with industry standards, assure our members to receive the highest level of guaranteed warranty on all products and services even on the membership fees.
3. “Take care of our employees”—Costco highly values its employees and aims to provide them with attractive opportunities for personal growth. It does so by pledging to provide for employees: attractive wages, valuable employee benefits, safe, challenging, and fun environment, great opportunities, an environment free of discrimination, and persecution.
4. “Respect suppliers”—The success of Costco is dependent on its partnership with its suppliers, and thus, aims to: treat well all vendors, fulfill all obligations, provide protection to the properties of suppliers that assigned to Costco, avoid any form of supplier’s gratuity.
5. “Reward our shareholders”—The success of Costco is only possible when its shareholders are provided a good return on their investment, and so, it aims to reward stockholders and employees for placing their trust in Costco. (Thompson, A. page C-33)

Competitive attacks that the company has undertaken

Costco is the largest wholesales brand and third largest retail company in the United States. Costco faces stiff competitors from other players in the retail industry, such as Loblaws as well as Walmart, and among wholesales companies have to face BJs, and SAM club wholesales companies. However, despite Costco having such a colossal success level, it doesn’t invest in technology, human resources, or even in advertising; instead, it focuses on customers’ satisfaction, employees’ growth, and it’s the business model different compared to those of its competitors (Chuang, n.d.). Costco has implemented the following competitive attacks to remain relevant in the market.

Costco has been in a position to remain relevant through constantly renovative, which can be classified as a competitive attack within the offensive strategy. Branding has enabled Costco to establish high switching costs through innovation. This has been through a continuous process of focusing on the customers’ needs and delivering quality products hence leading to the development of the trust with their customers. To support the above idea Costco has created its private brand, which is referred to as Kirkland. This has been achieved over time through benchmarking and constant innovation to improve on quality and hence, acts as an attraction to customers as well as it is a significant revenue generator to the company. Costco’s Kirkland brand encompasses of the apparel, organic and fresh foods; households essential, sporting goods as well as health and beauty products.

Additionally, Costco has also ensured that its reputation on quality and competitive prices as well as a better payment scheme for employees through efficient human resource management has also remained solid hence leading to efficiency in production. (Corona & Altamirano, 2010)

Another competitive attack that Costco has implemented is to apply a low pricing strategy while at the same time maintaining the quality, thus leading to customer loyalty. Chuang (n.d.) states that Costco has been able to enjoy customer loyalty through efficient management of its retail chains hence leading to a reduction in the cost of operation, through buying goods in bulk for their direct lines, and hence they are offered goods at a lower cost. That translates to the low pricing of the different products. When customers are offered better competitive prices of quality products, they tend to stick to the brand as they become repeat clients. Chuang (n.d.)