• Subject Name : Management

Table of Contents


History of Costco and Leadership.

The Business Model of Costco.

Costco’s Strategy.

Recommended Strategy to Costco Business.

Financial Performance

Recommendation to Costco Management



Introduction to Costco Wholesale Analysis Case Study

Costco Wholesale is one of the most discounted warehouse clubs founded in the year 1983 by the two most vital people Jeff Brotman and Jim Sinegal. They had a clear vision to provide customers discounted products and services at an affordable cost. The overall growth and success of the Costco warehouse are from its business model which was based on increasing high sales along with the drastic growing inventory through providing fee-paying member an attractive low cost on a limited choice of a global brand as well as selected private-based items in a large variety of products categories (Verbeke, 2013). Therefore, this purpose of this case analysis is to determine the business model and strategies that are adopted by the Costco Company to increase its sales volume by offering a quality product to their customers. Apart from this, to remain within the competitive market base, a certain valuable recommendation to Costco management has been provided to sustain its growth position as well as maintain its financial performance.

History of Costco and Leadership

Costco wholesale is termed as an American warehouse clubs that tend to provide a large option of customer merchandise to their customers. It has been analyzed that they are presently the largest membership brand for the warehouse club within the entire US market as well as the second-largest retailer after Walmart. It has been found that Costco Company is operating as a global brand with the Costco Wholesale along involved in producing quality, branded products at an affordable cost than any other retail store. Costco club has substantial growth in the earlier time because after one month they have open nine new stores in five different states with more than 200000 members (Blackburn, Hart and Wainwright, 2013). However, in the year 1985Costco had decided to sell shares to the public and raise some additional funds for its global expansion. It has come out as a profitable decision because it has reached $1 billion from the sales in almost six-year time. After a couple of years, Costco has decided to offer gold star membership for their individual that does not have its own business as well as available for a minimum of $55 annual fees in the entire US market.


“Costco's mission has continuously involved in offering quality goods and services at the best affordable cost to their customers”.

Vision: “Costco warehouse tends to have a clear vision statement with an efficient platform for their client to experience buying and operating practices through offering members proper accessibility to unmatched their savings”. 

The Business Model of Costco 

The Costco business model was based on an effective value proposition that includes a mixture of various aspects such as an ultra-low-cost price on their specific selection of global brand as well as Costco private-level products consists of a large range of consumer brands varieties. It has been determined that it is having a reliable product quality and exciting merchandise goods selection that consists of both regular consumer goods as well as ongoing purchase from a large category of suppliers. After going through the entire operations, it has been decided that Costco is using Subscription business models that are related to increase sales capacity as well as enhance stock turnover through offering free paying members an efficient low-cost option for their quality product varieties (Mithas, Tafti and Mitchell, 2013). The fastest-growing stock turnover along with the combination of minimum operational cost has attained through large purchasing options, valuable distribution network, and minimum handling cost of products.

These self-services facilities tend to provide maximum opportunities to the Costco warehouse to generate a sufficient amount of profit at a reasonable low GP margin other than the Wholesalers. It has been determined that the Membership fees are considered as a key element of the Costco business model because it provides valuable revenue to improve the overall profitability position of the company. Its revenue tends to show a decent growth of 100 % of the total net earnings. It means that the balance of Costco’s entire business operation is marked below on the breakeven analysis (Johnson, 2016). Therefore, Costco was clearly able to finance their merchandise stock by the use of payment that was provided to the vendors instead of maintaining sizable working capital. Costco’s tend to measure their overall performance by using the below-mentioned operating cost ration and profit percentage.
















Operating profit







Net operating margin







From the above operating margin, it has been determined that the Costco operating profit is higher than Walmart because of the total number of sales as well as stock turnover growth. It has also allowed the company to increase the production capacity of its products before paying plenty to its commodities vendors. 

It has been analyzing examined that Costco business tends to present one of the widest and exclusive product ranges options in a single roof. They are responsible to offer their client a reliable selection of more than 3600 quality products. According to the financial report, almost 80% of their product quality is highly in demand to the customer as well as 15% of them are used for the private label products (Ghezzi, 2013). It has been analyzed that typical retailers used to carries around 1250000 to 150000 product variety for their shoppers to select as per their requirements. Costco management had to progress enough to ensure a better shopping experience to its current members along with the available product varieties of membership offers. In almost every year, the company can generate a sufficient amount of revenue from the sales of its merchandise as well as create a lot of opportunities by open new warehouses in a different location. Moreover, the models have assisted them to experience economies of scale, whenever they earn from the operating margin as well as enables them to overcome their cost of manufacturing for the advanced products. In regards to the operating efficiency of the requirement for economies of scale, the overall supply chain has reliable enough to generate extra benefits to cost savings as an essential part of the company's entire business operations. 

In the context with the overall business model of Costco, they are mostly involved in the overall performance of the sales, large production level, and attain cost benefits from their available resources. Hence, it is quite logical to deal with Costco to become an effective and competitive brand along with the growth in the total size of its warehouse stores. According to the financial performance of the company, it has been identified that Costco can have sufficient profit that can be used for the payment of their employee's salary, health benefits, vacation time, and additional allowance so that they can work with full potential (Bocken and et.al., 2016). The high cost of wages indicates that they are using a cost-saving plan option so that further growth and revenue can be increased for the company in the future.

Costco’s Strategy

It has been determined that from the starting point of the business, Costco has planned to follow an effective strategy that can entirely be aimed at providing ultra-low prices as well as a limited choice of globally branded products to their customers. One of the major quality products Kirkland Signature used to covered wide segments of product categories. It flows in a treasure hunt shopping ambiance that stemmed from a regularly changing stock turnover of around 900 as well as maximum focused was given on the minimum operating costs and future growth expansion of their demographic segments of store locations (Saebi and Foss, 2015). However, Costco plays an eminent role to maintain a trustworthy relationship with their customers to maintain the long-term trust of their customers. It has disrupted its close competitors Walmart by stocking its products that will be cost at minimum bargaining level. Thus, it provides a significant cost-saving option to their buyers so that they can experience more advanced features of products from the company.

However, it has been identified that Costco Wholesale Corporations has its main generic strategy that can help them to gain competitive benefits to the company. Cost leadership strategy is adopted by Costco to manage its low-cost policies. Most clients are expected to have significant savings after buying products from Costco. This particular strategy tends to maintain its low pricing options more efficiently (Valipour, Birjandi and Honarbakhsh, 2012). Being a potential retail business firm this particular strategy would also tend to be combined with the overall membership warehouse club. This strategy developed the edge which would get the company to increase its sales as well as take it away from its close competitors. It consists of two primary aspects such as: 

Increase the profit by reducing the price: It has been determined that Costco warehouse is always wanted to be a competitive market brand by offering quality products at an affordable cost. It can help them to increase their customer base all over the market. Costco Company can increase maximum profit through selling products at the low prices from its close competitors. 

Enhance market share by following the low prices: On the other, Costco has a valuable option to increase its market share by offering quality products to its customers at a low cost. As per the financial position, it has been seen that the company is earning a good amount of profit that can help them to capture a wide market at a reasonable cost (Kurt and Zehir, 2016). 

Being one of the few largest corporations, it used to apply the best unique strategies that are related to the operation, production, and marketing that make it stable out from the entire retailers that are considered close competitors of the company. Costco is always looking to innovate new features and offers that have a dynamic operational team that is highly dedicated to the align mission of the company. Apart from this, they are using an attractive pricing strategy that has been coping-up with their mark-up based on the brand name products at a minimum of 14%. However, the mark-up decided on the Costco private-label products were a large value of 15%, but certain fractional has their still be reached in the exclusive brand. Expect with the Walmart, Costco tends to use price for their fresh foods and other grocery items that are ranged from 20-30 percent below to the leading supermarket chains (Schaltegger, Lüdeke-Freund and Hansen, 2012). The Signature product consists of vitamins, bottled water, coffee, canned, and laundry items. As a minimum mark-up, a Costco cost price increased just above the breakeven levels and increase net sale revenue with the production of high-quality products. Moreover, the warehouse intends to operate on 7day, typically being open for the customers. 

Growth strategy: It happens to be an effective plan of action that tends to be followed by the Costco Company to attain a high level of market share other the current position. A growth strategy is not effectively aimed at short-terms profitability, but for the long-term purpose also. The firms need to make use of an effective growth strategy to increase its market value. Costco Strategy tends to enhance the sales with the current stores by 5% or more each year and planned to open new addition to the overall growth of the company. On average growth at their prospective stores at least 10% in the fiscal year 2011, as well as 6% in both fiscal 2013 and 2014 at 7% in 2015. Costco has been using an aggressive growth strategy while opening its new warehouse as well as entering new geographic locations. In December 2000, the company intends to operate a valuable supply chain of 349 warehouses in almost in 32 states, 9 Canadian provinces into the 59 concern locations. Thus, Costco has entered into 3 other counties with the new 165 warehouse location effectively these selected areas. The growth strategies tend to have various parts that are mentioned below: 

Market penetration: By the use of growth strategies, Costco can do not need to open a new market or creating any additional product variety to enter into the market. It is attempted to enhance the market share by using its present product and services that are currently more in demand to the customers. However, it is generally related to a successful selling or a product or service with a particular market segment. It has been used to measure the amount of sales volume of the current goods as compared to the total estimated market ranges for the demand of the goods. It happens to be a good strategy that can help the companies that are already operating in the market.

Product Development: These particular marketing strategies tend to be valuable for the overall growth of the Costco Company. It can effectively useful for the company to introduce a new product before moving into some other markets. It is generally related with the introduction of new products to serve the similar market segments within the specific locations. As, it has been seen that Costco is moving constantly with their new products into different countries (Ghezzi, 2012). Thus, it would be quite valuable options for them to take the advantage of the global market by introducing new product varieties into the targeted market. However, this particular growth strategy is all about to attain maximum opportunities for the new growth in the company present market situation.

Market development: This particular growth strategy helps the Costco business to introduce their product and services to new market. It consists of selling their existing products into some other market place of the country. It helps to identify as well as develop new market segment for the present products that are produced by the Costco. It tends to targets the entire non-buying client in the presently targeted segments. It also used to provide new clients opportunities in the new market. It will fincreasingssist in increase overall profitability and market share position in the other locations so that future brand value can be attained effectively.

Diversification: It happens to be another aspect of the growth marketing stra ategies that are more radical form of growth to the company. It consists entirelyeloping an entireaw product for the relatively new market. This particular strategy tends to be helpful for the Costco business to extend their product lines as well as operate in wide range of the market. However, it could be valuable for the firms for the development of their business in the global market operations. Diversifications tend to increase the market potential as well as attain maximum customer market as compare to other companies. The primary focus of this strategy is to reduce the risk by making investing in different range of products that are produced by the company for their wide range of customers. Furthermore, it can also useful to manage its market volatility as well as provide maximum option to make investing into their financial goals to generate maximum amount of profit for the company.

Recommended Strategy to Costco Business

Throughout the entire case scenario, it has been seen that the cost leadership and growth strategy tend to be an effectively valuable for the company. However, Costco operate with a tight operation along with the low overheads that can enable the company to pass on a dramatic savings to their group members. It can be equally profitable for them to increase maximum sales from their entire stores by 5 percent on an average basis. Therefore, it is important to have an attractive strategy that can provide maximum benefit to the Costco in the long run business operation. Thus, the best strategic that can fit for the overall consistency, optimization, and reinforcement of their entire business operations. The 7s framework for strategic can be reliable to support the Costco operations effectively for their future growth. 

Strategy: The Costco warehouse is tend to offers ultra-low prices as a reliable option of internationally brand to their customers. Therefore, they need to change certain shopping environments that can provide strong focus on the low operating cost. It will be further assist in increase the profitability position of the company (Banker, Mashruwal and Tripathy, 2014).

Structure: The primary benefits of Costco business are the horizontal structure operations that have helped them to manage their entire team members to produce quality products to their customers. The company can easily adopt new policies and strategies to take maximum benefits from their internal as well as external stakeholders so that the structure could be improved for the company. Costco need to adopt flat organizational structure that can help them to increase the confidence among the entire team to perform their role effectively.

Speed: It has been suggest making used speedy plan to continue their business expansion at both local as well as global market. Its current stores has base of 670, but the administration has planned to reach 1200 warehouses as a long-term planning. They are likely to continue to open new market, but around 30-35 stores in a year is open by the company (Ton, 2014).

Shared value: It has been analyzed that the Costco value is quite efficient enough to increase their brand value in the market, because it is entirely supported by the major four values such as follow the law, take control of their client, employees, and practice the downfall of the sales. Thus, it is suggested to improve the values of the company so that maximum growth and sustainability could be attained in the future.

Skills: Costco tend to operate with skilled staffs and employees that are capable enough to increase the production capacity of the company. Thus, it is important for the company to make maximum investments on training and development programs that can enable the workforces to attract and retain their skilled to increase their productivity of the company in the global market. It is required to be doing so because the employees are valuable parts of the Costco so they need to provide their entire experience to increase the sales volume.

Style: It has been identified that the Costco leaderships consists of Sinegal and Jeff as they are responsible for take innovative decision to increase the production level. Thus, it has been recommended to make continuous innovation and flexibility to create their style within the organization so that maximum growth options can be incurred in the future. The management style of the business can inspire the other team members as well as the shareholders to make investments in their respective projects.

Staffs: It has been determined that Costco are not providing any kind of benefits to their staff while working within an organization. Therefore, it is important to increase their motivation by offering extra-ordinary benefits such as salary growth, allowance, and allowance for the additional work (Dobni, Klassen and Sands, 2016).

Financial Performance

According to the financial report of the Costco, it has been determined that they are financially strong enough to manage their day-to-day operations. Costco has increased its overall function successfully as well as have recently fulfilled their record of maximum revenue of $2714 in 2017. In context with the, increasing performance from last couple of years has helped the company to take attractive decisions that can increase their market share position at the global market (Baroto, Abdullah and Wan, 2012). However, it has been effectively analysed that in the last 10 years of business Costco has attain remarkable growth in terms of high revenue. The sales for the year are also increased from 11% since the last 10 year performance.









Operating profit




Net operating margin




Net income




Current assets




Current liability




Net cash balance




Net profit ratio




Current ratio




liquidity ratio




Average growth of warehouse




From the above ratios and financial data, it has been analyzed that the current ratio tends to remain almost the same in the last three years with 1.1 in 2017, it means that Costco can maintain the position of their short-term assets in comparison with their debt. The liquidity position of the company is low as they are not having a sufficient amount of cash to meet their short-term obligations. The liquidity ratios remain to the idea market which is 1:1, thus, it could be quite an alarming situation for Costco to manage its liquidity position so that chances of cash availability can be increased in the coming future. The stock turnover ratios have increased every year from 12.31 times in the last couple of years that is another important example of managing their stock position efficiently. The overall sales of inventory is taking almost 30 days which reflects that the Costco company strength to positive management in their inventory cannot be achieved as planned by the management. After evaluating the above financial performance of Costco, it has been found that they are facing some kind of problems in managing their resources effectively, whether related to the cash or inventory. Thus, it is important to maintain a decent healthy position for the company so that future success can be attaining more systematically. 

Recommendation to Costco Management 

After analyzing the entire business model and financial position of the company, it has been identified that Costco needs to change its business strategies so that further benefits can be attained from the entire global market. Costco needs to adopt high impact market techniques as per the current trends that exist in the market. However, the staff motivation an is also an important suggestion to Costco so that they can increase their productivity level with the constraints of the available resources. 

On the other hand, financial performances are also important factors for the company. It has affected the entire business operations of the company, thus it is vital to maintain the efficient flow of cash within their business so that operational activities can be performed easily. However, the liquidity position of the company needs to target closely because it can help the firm to meet its short-term debt obligations. Furthermore, the rotation of inventory days needs to reduce up to a certain level because it is taking too long to recover in the production process. 

Conclusion on Costco Wholesale Analysis Case Study

Throughout the entire case analysis, it has been articulated that the company needs to manage its business model effectively as per the requirements of the market demand. It can further help Costco to attain its long-term vision efficient without affecting the other operations. However, Costco needs to adopt a new business strategy as a cost leadership strategy is little bound to increase its market growth. Moreover, the financial performance of the company is quite efficient enough to increase their sales as well as the market size in the global market.

References for Costco Wholesale Analysis Case Study

Books and Journals:

Banker, R.D., Mashruwala, R. and Tripathy, A., 2014. Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy?. Management Decision.

Baroto, M.B., Abdullah, M.M.B. and Wan, H.L., 2012. Hybrid strategy: A new strategy for competitive advantage. International Journal of Business and Management, 7(20), p.120.

Blackburn, R.A., Hart, M. and Wainwright, T., 2013. Small business performance: business, strategy and owner‐manager characteristics. Journal of small business and enterprise development.

Bocken, N.M., and et.al., 2016. Product design and business model strategies for a circular economy. Journal of Industrial and Production Engineering, 33(5), pp.308-320.

Dobni, C.B., Klassen, M. and Sands, D., 2016. Getting to clarity: New ways to think about strategy. Journal of Business Strategy.

Ghezzi, A., 2012. Emerging business models and strategies for mobile platform providers: a reference framework. info.

Ghezzi, A., 2013. Revisiting business strategy under discontinuity. Management Decision, 51(7), pp.1326-1358.

Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.

Kurt, A. and Zehir, C., 2016. The relationship between cost leadership strategy, total quality management applications and financial performance.

Mithas, S., Tafti, A. and Mitchell, W., 2013. How a firm's competitive environment and digital strategic posture influence digital business strategy. MIS quarterly, pp.511-536.

Saebi, T. and Foss, N.J., 2015. Business models for open innovation: Matching heterogeneous open innovation strategies with business model dimensions. European Management Journal, 33(3), pp.201-213.

Schaltegger, S., Lüdeke-Freund, F. and Hansen, E.G., 2012. Business cases for sustainability: the role of business model innovation for corporate sustainability. International journal of innovation and sustainable development, 6(2), pp.95-119.

Ton, Z., 2014. The good jobs strategy: How the smartest companies invest in employees to lower costs and boost profits. Houghton Mifflin Harcourt.

Valipour, H., Birjandi, H. and Honarbakhsh, S., 2012. The effects of cost leadership strategy and product differentiation strategy on the performance of firms. Journal of asian Business strategy, 2(1), p.14.

Verbeke, A., 2013. International business strategy. Cambridge University Press.

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