costco ppt

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Creative Exposure Consulting, LLC Mission, Business Model, & Strategy

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Page 1: Costco ppt

Creative Exposure Consulting, LLC

Mission, Business Model, & Strategy

Page 2: Costco ppt

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

Page 3: Costco ppt

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

Page 4: Costco ppt

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

Page 5: Costco ppt

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

Page 6: Costco ppt

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

Page 7: Costco ppt

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

Page 8: Costco ppt

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

Page 9: Costco ppt

Creative Exposure Consulting

Costco vs. Competitors

Last trade: $0.00 $0.00

Page 10: Costco ppt

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

Page 11: Costco ppt

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

Page 12: Costco ppt

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

Page 13: Costco ppt

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

Page 14: Costco ppt

Creative Exposure Consulting

Strategic Performance

Page 15: Costco ppt

Creative Exposure Consulting

Financial Performance

Page 16: Costco ppt

Creative Exposure Consulting

Acquiring New Members

5.1% increase

overall

7.3% increase 1999 & Before

Page 17: Costco ppt

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

Page 18: Costco ppt

Strategic IssuesRemain focused on core

businessMaintain First Mover StatusIncrease internationalization

opportunities

Page 19: Costco ppt

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)

Page 20: Costco ppt

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

Page 21: Costco ppt

Creative Exposure Consulting

Questions