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Costco Wholesales

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Category: Business

Autor: anton 04 January 2011

Words: 1473 | Pages: 6

DATE:

TO: CEO

FROM: Consultant

SUBJECT: Costco Wholesale Corporation

SCOPE: In this report is compiled information about Costco Wholesale Corporation, to provide suggestions and concerns about possible future endeavors with this company. By using this information, our company can look into the strengths, weaknesses, opportunities, and threats of Costco and apply them towards a business plan that would be profitable for both companies.

METHODOLOGIES: Sited sources from various online websites and other articles provided ample information for this report, as well as past experiences and employee interaction. The online sources were very useful with exact figures about the company, as well as insight to the differences between Costco wholesalers and other major retailers such as Price Club and Wal-mart. The objective of this report is to find something about the company that our group could use to create business between one another. Our goal is to provide custom services to new technology businesses.

Costco Wholesale Corporation consists of about 500 warehouses worldwide providing discount shopping without frills such as salespeople or extravagant building sites. The low-cost retailer provides goods and services for all types, and offers a three-tier membership for a small annual fee. The memberships consist of: Business, Gold Star, and Executive. Costco generally operates under the name “Costco Wholesale”, but has many subsidiaries such as Kirkland Signature and Costco Wholesale Industries, who run manufacturing plants that provide meat processing and optical laboratories. (Costco.com, 2006) By maintaining low prices at exceptional quality, Costco has risen to the top of wholesalers.

Founded by Jim Senegal in 1983, the first Costco warehouse opened its doors to Seattle, WA. The main idea behind Costco is to provide members with the lowest prices, give the best wages and most protection to the employees, respect all suppliers, and most of all, do it all in a lawful manner.

FINDINGS

STRENGTHS: Costco has the advantage of using wholesale prices to help small business owners cut costs, but also offers its products to the public. They don’t, however, cut back on quality. They sell high quality products such as fine wines, state-of-the-art electronics, and Tiffany-style jewelry. (Shapiro, 2003) Costco also has a very low turnover rate because of the higher than competitive pay they offer their employees. Their average minimum wage across the board is about $16.00. With the introduction of their own signature brand, Kirkland Signature, members are allowed to purchase name brand quality at a lower price on many different products including batteries and soda. The strength of the name and the number of members makes Costco a very strong retailer.

WEAKNESSES: The high rate of pay and lower than low pricing strategy is threatening to Costco because stockholders don’t want to back a company that doesn’t want to maximize profits. Some feel that Costco puts its customers first, then employees, then vendors, and then finally shareholders. (Herbst, 2005) This could lengthen the time that the stock price rises, due to lesser stock purchases. Another weakness is the low pricing strategy that has been imposed. There is very little profit being made on each item, maybe 15% over cost, but Costco claims that they are making up for it in volume. The problem that rises is how do they sell enough of every item to remain profitable? There are many items in the store that might have to be taken off the shelf after a very short time because they cant afford to give up valuable shelf space to a product that isn’t selling.

OPPORTUNITIES: Costco has continued to grow into the largest wholesale merchandiser in the country. They have 488 warehouses worldwide with 47 million cardholders. (Costco.com, 2006) Continuing to expand with regional goods and services, Costco doesn’t look to be slowing down in expansion. The continuing expansion and additions of new members also offer many new opportunities for Costco. People are paying $45-55 dollars a year just to have the privilege to shop at Costco, and this, in turn, will build brand loyalty and have these members coming back time and time again. By using the brand loyalty to our advantage, we could have a product or service that caters to Costco only, and the members that are already loyal to Costco would be more inclined to support a product or service that can only be obtained through that channel.

THREATS: As mentioned before, Costco has a low turnover rate due to competitive pay. This has raised many problems with the shareholders on Wall Street. They see the higher pay as less money the stockholders will receive in the future, and less money for profit in the long run. Not only does Costco pay generous salaries, after about three years of full-time employment, Costco takes care of medical expenses up to about 92%. (Herbst, 2005) The reason why this is so threatening is because stock prices may plummet at any time.

RECOMMENDATIONS: With the analysis of Costco Corporation, the main concern is addressing the dissatisfaction of the stockholders. They believe that because Costco is paying so much to the employees and giving them so many benefits, the stockholders are not getting back what they should. They feel that the return on the investments they made could be much higher if Costco would maintain the industry average for wages. The only solution present is to not provide as much health care as they do. Costco, leaving only 8% for the employees to pay, covers 92% of healthcare as of now. (Greenhouse, 2005) By increasing the amount paid by employees by 1-3% saves Costco enormous amounts of money to give back to the shareholders. And the employees are already getting bonuses and higher than the industry average in wages; so many to all would barely notice the change even at all.

The company has been growing ever since they opened up their first store in 1983, and is going to continue to grow worldwide with stores in places like the UK, China, and Japan. Another recommendation is to try and get into the overseas market and provide the same custom services that are offered here in the states such as prescription filling or gas stations. Many foreign places do not have one stop shopping and could embrace the idea of shopping for everything all at one store.

BUSINESS IMPACT: With all the information provided and recommendations given, in order to put either into effect would take a great deal of effort. Costco’s founder and President, Jim Senegal, is known to be very hard-headed in his decisions about how much his employees will be paid or the amount of benefits that will be provided. If Costco were to adopt the higher percentage rate of employee paid benefits the short-term affect could be the loss of many unhappy employees. The long-term affect, however, would raise capital for stockholders and level off for employees due to inflation and raises.

If we were to adopt the second recommendation, the short-term affect would be the non-acceptance of foreign markets to have one stop shopping. Many foreign countries are much more cultural than the states and they want to go and buy their meat at the meat market and get their medicine at a pharmacy. The long-term affect could turn Costco into the main wholesaler in foreign countries. This would provide us with a stronghold in the market.

CONCLUSION: By continuing to provide exceptional prices for small to medium businesses and private parties, Costco has maintained its position as one of the best Wholesalers in the world. People always love a treasure hunt, and they can always find a plasma TV on sale in-between a box of 1000 crayons and institutional size peanut butter. The customer and employee loyalty has made Costco a shopping experience, not just a trip to the store. With such expansion has also brought much opportunity. The foreign markets are still very new to the idea of a wholesaler, and to be in business with an overseas Costco looks to be profitable. And, even though its thought to be impossible to maintain an even field between employee wages, profits, and shareholder dividends, with a little nudge Costco could make the field even more playable.

BIBLIOGRAPHY

Costco (2006). Company Profile. Retrieved on 9/28/06; http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-homeprofile

Herbst, Moira (2005). The Costco Challenge: An Alternative to Wal-Martization? Retrieved on 9/28/06; http://www.laborresearch.org/ print.php?id=391

Goldberg, Alan B., Ritter, Bill (2006). Costco CEO Finds Pro-Worker Means Profitability. Retrieved on 9/29/06; http://abcnews.go.com/2020/Business/story?id=1362779

Shapiro, Nina (2004). Company for the People. Retrieved on 9/29/06; http://www.seattleweekly.com/news/0450/041215_news_costco.php

Greenhouse, Steve (2005). How Costco Became the Ant-Wal-Mart. Retrieved on 10/4/06; http://www.nytimes.com/2005/07/17/business/yourmoney/17costco.html?ex=1279252800&en=8b31033c5b6a6d68&ei=5088&partner=rssnyt&emc=rss

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