Costco

. Company Overview

1. A. Costco Wholesale Corporation (Costco) is a multibillion-dollar discount merchandiser.   It uses a membership warehouse business model.   While Costco is not the first company to use the membership warehouse business model, it is certainly the most unique and the most successful with fifty percent of market share (Bickers, 2).   It operates over five hundred membership warehouses throughout the United States with operations in six other counties which serve the European and Asian markets (Thompson, C-2).
Costco’s basic business model is selling high quality, brand name merchandise at deeply discounted prices, and realizing profits primarily from the membership fees customers pay for access to its warehouses.   The two key factors of Costco’s business strategy—best quality and best price—are predicated on Costco’s business approach:
• Costco’s business approach is to maintain limited, quickly-moving inventories of nationally recognized, high quality merchandise at prices 10% to 15% below competitors;
• Eliminate every possible expense.   To eliminate every possible expense: Costco first eliminated the retail-outlet store.   Costco lets customers come to its warehouse and pick up their goods rather than requiring them to patronize a separate retail operation. The elimination of the retail operation allows Costco to reduce personnel, costly displays, shelving, and more importantly, the capital expense which would have been sunk in a brick and mortar retail operation;
• Increase inventory turnover through high volume sales by requiring manufacturers to package merchandise in case-lot and bulk containers.   Both Costco and its customers benefit from volume purchasing;
• Eliminated advertising expense by relying completely on the word-of-mouth of customers;
• Developed a treasure-hunt atmosphere—by keeping twenty-five percent of inventories made-up of onetime, high-end, name-brand products which are appealing to customers and sellout quickly;...