Costco business model analysis

Costco Wholesale in 2018: Mission, Business Model, and Strategy Before 10:00 AM on Wednesday, October 2nd, in not more than four pages, exclusive of any attachments or appendices, please provide written answer to the following questions: 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? 2. What are the chief elements of Costco’s strategy? How good is the strategy and which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the competitive approach that Costco is employing? Provide support for your contention 3. Do you think Jim Sinegal was an effective CEO? What grades would you give him in leading the process of crafting and executing Costco’s strategy? What support can you offer for these grades? How well is Craig Jelinek performing as Sinegal’s successor? Refer to Figure 2.1 in Chapter 2 in developing your answers. 4. What recommendations would you make to Costco top management regarding how best to sustain the company’s growth and improve its financial performance going forward? Submit a copy of your case analysis to Brightspace before 10:30 AM on Wednesday, come to class very familiar with the facts of the case and prepared to state and defend your answers. Final PDF to printer CASE 4 Costco Wholesale in 2018: Mission, Business Model, and Strategy Arthur A. Thompson Jr., The University of Alabama S ix years after turning the leadership of Costco Wholesale over to then-president, Craig Jelinek, Jim Sinegal, Costco’s co-founder and chief executive officer (CEO) from 1983 until year-end 2011, had ample reason to be pleased with the company’s ongoing revenue growth and competitive standing as one of the world’s biggest and best consumer goods merchandisers. Sinegal had been the driving force behind Costco’s 35-year evolution from a startup entrepreneurial venture into the third largest retailer in the United States, the seventh largest retailer in the world, and the undisputed leader of the discount warehouse and wholesale club segment of the North American retailing industry. Since January 2012, when Craig Jelinek took the reins as Costco Wholesale’s president and CEO, the company had prospered, growing from annual revenues of $89 billion and 598 membership warehouses at year-end fiscal 2011 to annual revenues of $126.2 billion and 741 membership warehouses at year-end fiscal 2017. Costco’s growth continued in the first nine months of fiscal 2018; 9-month revenues were $95.0 billion, up 12.0 percent over the first 9 months of fiscal 2017, and the company had opened four additional warehouses. As of June 2018, Costco ranked as the second largest retailer in both the United States and the world (behind Walmart). COMPANY BACKGROUND The membership warehouse concept was pioneered by discount merchandising sage Sol Price, who opened the first Price Club in a converted airplane hangar on Morena Boulevard in San Diego in 1976. Price Club lost $750,000 in its first year of operation, but by 1979 it had two stores, 900 employees, tho75109_case04_C17-C40.indd C-17 200,000 members, and a $1 million profit. Years earlier, Sol Price had experimented with discount retailing at a San Diego store called Fed-Mart. Jim Sinegal got his start in retailing at the age of 18, loading mattresses for $1.25 an hour at Fed-Mart while attending San Diego Community College. When Sol Price sold Fed-Mart, Sinegal left with Price to help him start the San Diego Price Club store; within a few years, Sol Price’s Price Club emerged as the unchallenged leader in member warehouse retailing, with stores operating primarily on the West Coast. Although Price originally conceived Price Club as a place where small local businesses could obtain needed merchandise at economical prices, he soon concluded that his fledgling operation could achieve far greater sales volumes and gain buying clout with suppliers by also granting membership to ­individuals—a conclusion that launched the deep-discount warehouse club industry on a steep growth curve. When Sinegal was 26, Sol Price made him the manager of the original San Diego store, which had become unprofitable. Price saw that Sinegal had a special knack for discount retailing and for spotting what a store was doing wrong (usually either not being in the right merchandise categories or not selling items at the right price points)—the very things that Sol Price was good at and that were at the root of Price Club’s growing success in the marketplace. Sinegal soon got the San Diego store back into the black. Over the next several years, Sinegal continued to build his prowess and talents for discount merchandising.