Costco Case Study Essay

1094 Words Mar 22nd, 2011 5 Pages
The chief elements of Costco’s strategy are low pricing, limited product selection, and a treasure hunt shopping environment.
• Pricing: a key element of their pricing strategy is to cap its markup on brand-name merchandise at 14% and markups on their private label items can be no higher than 15%. This strategy keeps customers coming in to shop by enticing them with low prices.
• Product Selection: this portion of the strategy only provides members with a selection of about 4000 items. Their product range covers a broad spectrum but the selection in each product category is limited based on fast-selling models, sizes, and colors.
• Treasure-Hunt Merchandising: while the product line consists of 4000... Costco goes out of its
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As of August 2010 the ROE and ROA for Costco was 12.0% and 5.5% respectively. The industry’s ROE was 20.7% and ROA was 8.3%. The percentages for this point in time are lower, however if you compare the 5 year average Costco 12.5% ROE and 5.7% ROA compared to the industry 18.9% ROE and 7.9% ROA the percentages are somewhat closer.

The current ratio for Costco went from .94 in 2001 to 1.16 in 2010. This increase is an indication that Costco has improved its level of current assets to current liabilities. This increase also signifies Costco is more liquid in 2010 than it was in 2001. Costco’s competitor’s current ratio for 2010 is Sears (1.3), Wal-Mart (.87), and BJ’s (1.17). The current ratio for the industry is 1.1. Costco, BJ’s, and Sears are in line with this; however Wal-Mart may want to research why they are falling below the industry average.

The inventory turnover ratio indicates how effective the business is at selling its products. The more effective the company is the higher the inventory turnover ratio is. Costco went from a turnover ratio of 11.6 in 2001 to 12.1 in 2010. The increase signifies Costco has increased its effectiveness in selling its 4000 different products. The competitors are currently at Sears (3.7), Wal-Mart (9.2), and BJ’s (9.8). In comparison to the industry

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