Case Study 1: Costco Wholesale in 2008: Mission, Business Model and Strategy
A retailing company with a mission to continually provide members with quality goods and services at the lowest price possible, Costco Companies, Inc.’s business model was to generate high sales volume and rapid inventory turnover by offering members very low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories. It is very much appealing as small businesses are the definite target customers. Low price definitely attracts more customers, and is strategically advantageous to this kind of industry.
Costco’s low price strategy is the highlight of the company’s strategy and is very powerful …show more content…
This is also evident in the almost constant Operating Profit Margin (0.03) and Net Profit Margin (0.02). A good company must have an improving performance in terms of profitability while it is expanding.
Costco is also in danger of falling slightly back on its capability to pay current liabilities. Its current ratio is not so good averaging around 1 for eight years. | 2008 | 2007 | 2006 | 2005 | 2000 | Current Ratio | 1.07 | 1.09 | 1.05 | 1.22 | 1.02 | Quick Ratio | 0.50 | 0.52 | 0.47 | 0.62 | 0.29 | Working Capital | 588.00 | 742.00 | 413.00 | 1477.00 | 66.00 |
Although not a big threat, another factor being overlooked here is the company’s leverage performance. As it is expanding locally in the USA and globally, its leverage ratios must be monitored for its increasing trends | 2008 | 2007 | 2006 | 2005 | 2000 | Debts-to-assets ratio | 0.11 | 0.11 | 0.01 | 0.00 | 0.09 | Long-Term Debt to Capital Ratio | 0.19 | 0.20 | 0.02 | 0.07 | 0.16 | Debt to equity ratio | 0.25 | 0.25 | 0.03 | 0.09 | 0.19 | Long Term Debt to Equity Ratio | 0.24 | 0.24 | 0.02 | 0.08 | 0.19 |
Costco’s strategy of selling in big / bulk containers at very low price and its treasure-hunt merchandising must have paid off as its sales remain consistently superior above its other two competitors BJ and Sam’s Club. Costco certainly have a winning advantage as also indicated by its numerous members greater than that of its competitors. Its “very low” price have gained them loyal