Costco business model

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Costco business model

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case study, Costco, warehouse market, Wal-Mart, American family, Issaquah, Washington, Price club, business model, membership

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Many people are familiar with Costco's reputation for selling incredibly large amounts of toilet-paper, diapers, breakfast cereals, and paper towels. However, many people are not aware that Costco also offers plasma TV's, Seven Jeans, and grand pianos for sale as well. In fact, this diverse product mix of consumer products packaged in bulk along with discount luxury goods is one of the keys to Costco's success in the warehouse market. Costco continues to succeed because it can effectively predict customer needs and wants, stock only those items that customers have a demand for, and foster impulse purchases of luxury goods.

Stocking items that customers have a strong demand for
Charged membership
Costco and its employees
A successful business model
The growth of the American family

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[...] As growth of American families has been fueled in large part to discount chains such as Costco, that offer large quantities for low prices. This has led some people to criticize Costco for “feeding American consumerism and waste,” leading many to wonder many things do you need 42 (Bick). Nonetheless, there does not appear to be any sort of reversal of the trend in growth and Costco remains a top destination of the ever growing American family. I believe that many others discount stores will try to imitate Costco's business tactics. [...]

[...] Costco remains profitable by stocking only those items that customers have a strong demand for. According to Costco's chief financial officer, “while a grocery store might stock 40,000 separate types of times, and a Wal-Mart might stock 100,000, Costco will stock only the 4,000 most popular items it can find” (Bick). The 4,000 items offered at Costco are not limited to bulk necessities such as laundry detergent and tissue paper, but also popular luxury items. This includes high-end electronics items, such as i-Pods and plasma TV's, as well as clothing items, such as Ugg boots and Seven jeans. [...]

[...] Costco is currently the leader in the warehouse market. From humble beginnings in Seattle, Washington, Costco has grown to be a global powerhouse with more than 500 stores worldwide. For the 2006 fiscal year Costco posted record high sales figures totaling $ 58.96 billion, as compared to rival Sam's Club, which operates over 670 stores worldwide but only $40 billion in sales (Bick). Not surprisingly, Costco continues to outperform it's other competitors, most notably BJ's Wholesale Club and Target. The source of Costco's market leadership is it's innovative product offering and membership services. [...]

[...] According to a recent New York Times article, typical full- time cashier will earn $40,000 a year plus benefits after four years with the company” (Bick). Furthermore, Costco has also led the way in offering health care benefits to it's employees, extending health care subsidies to 81,000 of it's 100,000 workers (Freudenheim). On the other hand, Wal-Mart has been criticized for knowingly denying workers access to health care benefits (Freudenheim). Costco's future profitability is not under question because of the success of it's business model. [...]

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