Case 1 - Costco Wholesale In 2012 q475h

Strategic Management (64 International A) Sheena T. Gabriela Rombang Tarsisius Hani Handoko, Dr., M.B.A. 14/372753/PEK/1952

Costco Wholesale in 2012 : Mission, Business Model, and Strategy Costco well to be known as the third largest retailer in the United States, the seventh largest retailer in the world, and the clear leader of the discount warehouse and wholesale club segment of the North American retailing industry. The success is rooted in the retailer industry effort put forth by its owners, Jim Sinegal. He’s not the typical CEO or most unCEO-like CEO that we’d ever expect. He’s not wearing a power suit, instead, he looks totally grandfatherly, dress casually, and determine to make Cotsco the best store for its s. In January 2012, Costco had a total of 598 warehouses in 40 states and Puerto Rico (433 locations), nine Canadian provinces (82 locations), the United Kingdom (22 locations), Korea (7 locations), Taiwan (8 locations, through a 55 percent-owned subsidiary), Japan (11 loccations), Australia (3 locations), and 32 warehouses in Mexico through a 50%-owned t venture. Costco’s fiscal 2011 total revenues were a record high of $88,9 billion and net income was a record high of $1,46 billion. About 25 million households and 6,4 million business had hip entitling them to shop at Costco, generating nearly $1,9 billion in hip fees for the company. Annual sales per stores averaged about $146 million, about 85 % higher than the 78 million figure for Sam’s Club. In fiscal 2011, 93 of Costco’s warehouses generated sales exceeding $200 million annually, up from 56 in 2010 and 4 stores had sales exceeding $300 million, including one that had more than $400 million in sales.

Company Background The hip warehouse concept was pionnered by discount merchandising sage Sol Price, who opened the first Price club. Price Club lost $750.000 in its first yeaar of operation, but by 1979 it had two stores, 900 employees, 200.000 , and a $1 million profit. Sinegal and Seattle enterpreuner Jeff Brotman founded Costco, and the first Costco store began operations in Seattle in 1983. In December 1985, Costco became a public company, selling shares to the public and raising additional capital for expansion. In October 1993, Costco merged with Price Club. Jim Sinegal became CEO of the merged company, presiding over 206 PriceCostco locations, with total annual sales of $16 billions. In January 1997, after the spin-off of most of its non-warehouse assets to Price Enterprise Inc., PriceCostco changed its name to Costco Companies Inc. When the company reincorporated from Delware to Washington in August 1999, the name was changed to Costco Wholesale Corporation. In January 2012, Jim informed to step down from CEO of the company. The Board elected Craig Jelinek to succeed Sinegal and hold the titles of both President and Chief Executive Officer.

Mission Numerous company documents stated that Costco’s mission in the hip warehouse business was : “To continually provide our with quality goods and services at the lowest 1 Case 1: Costco Wholesale in 2012

Strategic Management (64 International A) Sheena T. Gabriela Rombang Tarsisius Hani Handoko, Dr., M.B.A. 14/372753/PEK/1952 possible prices.” The centerpiece of Costco’s business model entailed generating high sales volumes and rapid inventory turnover by offering fee-paying attractively low prices on a limited selection of nationally branded and selected private-label products in a wide range merchandising categories. A second important business model element was that Costco’s high sales volume and rapid inventory turnover generally allowed it to sell and receive cash for inventory before it had to pay many of its merchandise vendors, even when vendor payments were made in time to take advantage of early payment discounts. hip fees were a critical element of Costco’s business model because they provided sufficient supplemental revenues to boost the company’s overall profitability to acceptable levels. Costco mission statement describes the enterprise’s present business and pupose, which are identifies the company’s products/services, specifies the buyer needs that it seeks to satisfy and the customer groups or market it serves, and gives the company its own identity.

Setting Objective The managerial purpose of setting objectives is to convert the vision and mission into specific performance targets. Objectives reflect management’s aspirations for company performance in light of the industry’s prevailing economic and competitive conditions and the company’s internal capabilities. The strategic objective is Costco wants to provide the lowest-pricet quality goods and services to the customer coming back to shop. For the financial objective, Costco enabled to operate profitably at significantly lower gross margins than traditional wholesalers, mass kmerchandisers, supermarkets, and supercenters. Company objective can be broken down into performance targets for each of the organization’s seperate business.

Crafting A Strategy To Achieve The Objectives And The Company Vision Crafting and executing strategy is a collaborative team effort in which every company manager plays a strategy making role. The strategies that entails addresing facets of Costco, such as : 1. A strategy of Costco was ultra-low prices, which is, to keep customers coming in to shop by wowing them with low prices. A key element of Costco’s pricing strategy had been to cap itws markup on brand-name merchandise at 14%. As a result of these low markups, Costco prices were just fractionally above breakeven levels, producing net sales revenues that barely covered all operating expenses and generated only a modest contribution to operating profits. 2. The next strategy of Costco was to provide with a selection of approximately 3600 active items. Costco’s product range covered a board spectrum but the selection in each product category was deliberately limited to fast selling models, sizes and colors. As a means of giving reasons to shop at Costco more frequently and make Costco more of a one-stop shopping destination. 3. The strategy that Costco implied was to entice shoppers to spend more than they might by offering irrestible deals on big-ticket time to keep the mix of featured and treasure-hunt items 2 Case 1: Costco Wholesale in 2012

Strategic Management (64 International A) Sheena T. Gabriela Rombang Tarsisius Hani Handoko, Dr., M.B.A. 14/372753/PEK/1952 constantly changing so that bargain-hunting shoppers would go to Costco more frequently than for periodic “stock up” trips. Management believed that the practices kept its marketing expenses low relative to those at typical retailers, discounter, and supermarkets. 4. Keeping operating costs at a bare minimum was a major element of Costco’s strategy and a key to its low pricing. 5. Costco objective was to increase sales at existing stores by 5 percent or more annually and to open additional warehouses, both domestivally and internationally.

Executing The Strategy Managing the implementation of a strategy is easily the most demanding and time consuming part of the strategy management process. Management’s action agenda for executing the chosen strategy emerges from assessing what the company will have to do to achieve the targeted financial and strategic performance. Costco’s low prices and reputation of trasure-hunt made it unnecessary to engage in extensive advertising or sales campaigns. Marketing and promotional acivities were generally limited to monthly coupon mailers to , weekly e-mails to from Costco.com, occasional direct mail to perspective new , and regular direct marketing programs, in-store productsampling, and special campaign for new warehouse openings. Costco operates two websites to enable to shop for many in-store products online and to provide with a means of obtaining a much wider variety of value prices products and services that were not practical to stock at the company’s warehouses. Costco bought the majority of its merchandise directly from manufacturers, routing it either directly to its warehouse stores or to one of the company’s cross-docking depots that served as distribution points for nearby stores. Costco had direct buying realtionships with many producers of national brand-name merchandise and with manufacturers that supplied its products. Costco also attracted the most affluent customers in disount retailing. The hip format facilitated strictly controlling the entrances and exits of warehouses, resulting in limited inventory losses of less than two tenths of 1% of net sales. Costco warehouse managers were delegated considerable authority over store operations. In effect, warehouse managers functioned as entrepreneurs running their own retail operation.

Monitoring

Developments,

Evaluating

Performance,

And

Initiating

Corrective Adjustments Monitoring new external developments, evaluating the company’s progress, and making corrective adjustments─is the trigger point for deciding whether to continue or change the company’s vision and mission, objectives, strategy, and/or strategy execution methods. Managers are obligated to assess whioch of the company’s operating methods and approaches to strategy execution merit continuation and which need improvements. Sinegal is an effective CEO as shown by his goals to keep Costco as 3 Case 1: Costco Wholesale in 2012

Strategic Management (64 International A) Sheena T. Gabriela Rombang Tarsisius Hani Handoko, Dr., M.B.A. 14/372753/PEK/1952 the third largest retailer in the United States and the seventh largest wholesales in the world. Jim effectively crafted and executed its plans and is liable to be at top ranking . All stakeholders are motivated.

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