costco ppt
DESCRIPTION
TRANSCRIPT
Creative Exposure Consulting, LLC
Mission, Business Model, & Strategy
Introduction Founded in 1983 Fourth largest retailer in the U.S. As of 2010, 573 warehouses in 40 states and 7
countries Fastest growing company in the history among
American businesses
Creative Exposure Consulting
Creative Exposure Consulting
Costco Only company to achieve $6 billion in sales from zero in six
years Founder Jim Sinegal coined as the inventor of the wholesale
Club concept Philosophy is to “keep members coming in to shop by
wowing them with low prices.” Does not engage in extensive advertisements or sale
campaigns Five Guiding Principles
Obey the law Take care of members Take care of employees Respect suppliers Reward shareholders
Creative Exposure Consulting
Product Diversification
Core - Costco Wholesale Warehouse Clubs and Superstores Premium private-label products
Core - Costco Business Centers Cross business strategic fit: formula 1+1=3
Specialty - Consumer Services Travel Optical Automotive
Financial Services 401(K) Loans
Insurance Pharmacy Recycle electronics
Creative Exposure Consulting
Business Model Low Cost/Low Price
Limited selection of top quality merchandiseWide range merchandise categories“Treasure Hunt” shopping environmentNo frills, self-service warehouseRapid inventory turnoverVolume purchasingOperating efficiencies
Creative Exposure Consulting
Business ModelLow prices
Limited selection of quality merchandise
+Wide range of merchandise categories
Rapid inventory turnover
Volume purchasing
Efficient distribution
Reduced handling of merchandise
+No-frills, self-service warehouse
Operating efficiencies
Rapid inventory turnover
+Operating efficiencies
Profit at a low gross margin (8%-14%)
Plus Membership Fees
Business Model Analysis
Is Costco’s business model appealing? Evaluation matrix based on:
Customer satisfaction – Ranked chief among competitors Out-competing rivals – Ranked 4th among competitors Response to changing market conditions – One stop shop
trends, Unique rotating merchandise, understanding affluent shopper spending behavior
Achieving financial/strategic objectives – Progressively demonstrates membership growth and net gains each year
Comparison to competitors – Differentiated, Industry leader
Are Costco’s prices too low? Not as of today, but could prove to be a problem in the future,
especially in foreign markets due to currency value
Creative Exposure Consulting
Competitive Advantage
Building core competencies and competitive capabilitiesFinding and negotiating bargains
On quality merchandiseBuilding relationships with
ManufacturersSuppliers
Ingenuity Cost cuttingConservation
Human ResourcesEmploying the best talent
Creative Exposure Consulting
Costco vs. Competitors
Last trade: $0.00 $0.00
Creative Exposure Consulting
Costco vs. Wal-MartO
pera
tin
g
Marg
in
Number of Locations
Higher
Lower
Few Many
BJ’s
P
Costco
Sam’sClub
Pricesmart Inc.
Note: Circles are drawn roughly proportional to the sizes of the club chains based on revenue
Sales Breakdown
Creative Exposure Consulting
FY 2008 Costco vs. Competitors
CompanyRevenue (Billions)
Net Income
(Billions)
Operating
Margin
Comparable
Store Sales
(Decline)Locatio
ns
Costco $70.9 $1.3 2.7% 6.0% 512
Sam's Club $46.8 N/A 3.4% 4.8% 602
BJ's Wholesale Club $10.0 $2.3 2.3% 9.4% 180
2008 Performance
Creative Exposure Consulting
Rivals’ Next Strategic Moves
More stores in foreign markets Facing market saturation in U.S.
cannibalization
Copy Costco Sam’s Club opens first Business Centers
July 22, 2008
SWOT AnalysisS
Opportunities Appeal to conscientious
shopper Expand into foreign
stable markets Mergers & Acquisitions Massive supplier pool
Weaknesses Burden of high
wages paid to workers
CEO’s retirement Low price margins E-commerce
activities Small Marketing
budget compared to discount retailers and Super Markets
W
O
Strengths Low Prices Strong Brand Operating Efficiency Exceptional
Workforce Strong membership
Threats Aggressive price competition by rivals Political
complications in foreign markets
Cannibalization
T
Creative Exposure Consulting
Strategic Performance
Creative Exposure Consulting
Financial Performance
Creative Exposure Consulting
Acquiring New Members
5.1% increase
overall
7.3% increase 1999 & Before
Creative Exposure Consulting
Winning Strategy - YES
Weighted FactorsFactor Strategy/Performance Score/Weight
Well-matched Offensive strategy –Low cost, low price, First Mover (i.e. Business Center, Greening Warehouses)
100%/30%
Competitive Advantage Best cost provider—top quality at lowest price, distribution efficiency, strategic alliances & partnerships, ingenuity/innovation via EFIM technology.
100%/30%
Sustained performance From 2000 – 2004 net sales increased by 45%, 2010 SEC Filings reported net sales increased 9.1% from the prior year to $76,255, driven by a 7% increase in comparable sales, membership fees increased 8.4%, due to new membership sign-ups and increased penetration of the higher-fee Executive Membership program. Stock price
100%/40%
Performance Total Outstanding performance 100/100
Strategic IssuesRemain focused on core
businessMaintain First Mover StatusIncrease internationalization
opportunities
Recommendations Target Jim Sinegel’s replacement as CEO in an effort to
preserve corporate culture Increase efficiency and effectiveness of E-commerce
activities to increase sales in both domestic and foreign markets
Acquire BJ in an effort to gain 180 stores and acquire R&D, talented employees, and loyal customers
Results warrant… Increase market share and business footprint Ability to capture new customers resulting in membership
growth Attain BJ’s competences to streamline processes Gain market presence in areas not currently located in(i.e.
clustered club locations)
Creative Exposure Consulting
Recommendations Are recommendations aligned with company
growth strategy? Yes Sales and Profit Growth Strategy
Open more new warehouses Build an even larger and more fiercely loyal membership
base Employ well executed merchandise techniques
Creative Exposure Consulting
Questions