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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?
3. Do you think Jim Sinegal is 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?
4. How well is Costco performing from a financial perspective?
Do some number-crunching using the data in case Exhibit 1 to support your answer. Use the fi nancial ratios presented in Table 4. 1 of Chapter 4 (pages 104-105) to help you diagnose Costco’s fi nancial performance. 5. Based on the data in case Exhibits 1 and 4, is Costco’s fi nancial performance superior to that at Sam’s Club and BJ’s Wholesale? 6. Does the data in case Exhibit 2 indicate that Costco’s expansion outside the U. S. is fi nancially successful? Why or why not? 7. How well is Costco performing from a strategic perspective? Does Costco enjoy a competitive advantage over Sam’s Club? Over BJ’s Wholesale?
If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not? 8. Are Costco’s prices too low? Why or why not? 9. Does Costco pay its employees too much? Does it make sense for Costco to compensate its employees so much better than the employees at Wal-Mart/Sam’s Club? Why or why not? 10. What recommendations would you make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the company’s growth and improve its fi nancial performance? Costco Case Study 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco’s business model was to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories. Management believed that rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution, and reduced handling of merchandise in no-frills, self-service warehouse facilities, enabled the company to operate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercenters. Yes, this model is appealing for the following reasons: o Allows the company to sell and receive cash for inventory before it had to pay many of its merchandise vendors o Allows company to take advantage of early payment discounts o Company is able to finance a big percentage of its merchandise inventory through the payment terms provided by vendors rather than having to maintain sizable working capital to facilitate