Costco Case Analysis Essay
1. Chief elements of Costco’s Strategy
Costco’s strategy relies on 3 main components: Customers, Supplier and Operating efficiency. Costco delivers the value to its customers by: products provided by no more than 14% over distributors price, Lowest per unit price in the optimal container, Kirkland brand name quality at discount prices. Costco target the customer segment of middle class customers in addition to small business. Costco delivers the value to its suppliers by: Offering a broad distribution channel, Few SKUs allowing manufactures to reduce production costs, and so being a powerful purchaser. Costco achieves very good operating efficiency by: Running …show more content…
Gross Margin of 10.4% is much lower than Sears’ of 26.6% and Wal-Mart’s of 21.5%. Only BJ’s has a lower gross margin of 9.2%. Operating Margin of Costco is the least of its competitors. Net Margin is still at a good level, even though Wal-Mart occupies the highest position (Wal-Mart is much more than SAM’s club). Costco has a higher net margin than BJ.
Costco’s operating margin falls down may be due to paying off debt or financing the creation of more new stores. Net margin proves that Costco is quite efficient in terms of operational costs.
Reference Exhibit 11
Observation Current Ratio is falling below 1, it is also the least for Costco during the full 5 years. Inventory Turnover of Costco is the best among other competitors. Costco Average receivables period and payable periods is almost equal to other competitors excluding