Costco Case Analysis Essay

2171 Words Jun 28th, 2013 9 Pages
Case Study: Costco Wholesale Corp. Financial Statement Analysis (A) A-186A

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
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Costco expanded its asset base so furiously in such a short period of time that sales struggled to keep up. Changes in the net margin were not driven by Costco management’s ability to influence its tax rate. Management is matured enough not to play with taxes. Costco remains very competitive by providing goods to customers at a very low mark-up and at a lower per unit cost.

Exhibit 10

Exhibit 10

Exhibit 11

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.

Exhibit 11

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.

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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

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