Case Study: Costco Wholesale in 2008 Mission, Business model and strategy.
Costco is the biggest membership warehouse club chain in the United States. This case introduces us to Costco Company’s mission, business model and strategy. The membership warehouse concept was pioneered by discount merchandising sage Sol price. Costco launched its first store in Seattle in 1983. In August 1999, its name changed to Costco Wholesale Corporation.
Costco’s mission in the membership warehouse business was “To continually provide our members with quality goods and service at the lowest possible price” The business model of Costco was created to generate high sales volumes 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. Costco believed rapid inventory plus the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handing of merchandise would ensure Costco to operate profitably at much lower gross margins.
The strategy of Costco was low prices, a limited product line and limited selection, and a “treasure hunt” shopping environment. In terms of pricing, Costco was known for selling top quality brands products at prices below other wholesale or retail outlets. Costco kept prices low to members and capped margins on brand-name products at 14 percent and 15 percent as well as on private label Kirkland signature items. However, unlike Wal-Mart or Target that provide wide ranges of product selections, Costco provided members with a selection of only about 4000 items. The product range did cover a broad spectrum of categories but each category had a limited selection and products were usually packaged in bulk and targeted to large families and businesses. Moreover, one fourth of Costco’s line products were always changing. For example, Costco picked some high end or name brand product to...