Costco Wholesale is a company that offers its members products and services at low prices; but of the best possible quality.
This organization seeks to collaborate to improve the quality of life of people, as well as small and medium-sized companies.
business-plan-of-a-company-case-costco-wholesaleCostco was founded by Jeffrey H. Brotman and James D. Sinegal in California in 1976. The company has a workforce of 189,000 employees around the world and 671 stores located in four regions: Western Europe, North America, Asia and Australia. Where most of these (474) are located in the United States, followed by their stores in Canada with 88 warehouses and the United Kingdom with 26 stores. The company reached its first million dollars during the first three years of operation, making it one of the fastest growing companies in the industry. Currently, Costco Wholesale has sales that exceed 112 billion annually, growth sustained over time, reaching a growth of 7.12% over the previous year (2013). The company markets a varied range of 4000 products,ranging from fresh fruits and meats to highly technological products, in addition, it has its own production brand; Kirkland. Costco Wholesale has set clear objectives for the short, medium and long term, where the expansion of the company to countries in which it does not yet have commercial representation, the increase in sales, through the company's website and, extension of continuing to meet the needs of its partners, focus the main objectives that this organization has set.Through the company's website and, continuing to meet the needs of its partners, focus the main objectives that this organization has set.Through the company's website and, continuing to meet the needs of its partners, focus the main objectives that this organization has set.
- General Description of the Company
1.1 Historical Evolution
According to the Costco corporate page (2015a), this American organization is characterized by being a business based on the membership of its customers. The greatest particularity of this corporation is given by providing an excellent service to its members, through the best prices in the market and the high quality of the products it sells. This organization has hundreds of establishments around the world, delivering a wide variety of selection for the merchandise offered, in addition, it has departments of specialties and exclusive services for its members. The motivation behind Costco Wholesale is to provide a pleasant experience to its users when making purchases. Costco Wholesale's operational philosophy is simple; keep costs low and pass savings on to partners.All this, combined with the great purchasing power of the extensive membership achieved, but also with the endless search for greater efficiency.
Over the years, Costco has expanded the variety of products it offers, this company markets for example; fresh products (fruits, vegetables, meats, fish, seafood, dairy, bakery, pastry, flowers), clothing, books, software, electronics, computers, appliances, solar panels, jewelry, art and decoration, tires, wines, furniture, products pharmacists, photo processors, gas stations, liquors, centers for hearing and eye assistance, etc. Costco also has its own brand; Kirkland Signature. The "house brand" can be found in stores, the company's website, and Amazon.com. This proprietary label was introduced in 1995 and is named after Costco's corporate headquarters, which is located in Kirklan, Washington.
The company's first store was called "Price Club" and it was opened in San Diego, California in 1976. This peculiar dependency was the result of the conversion of an aircraft hangar into the establishment itself. Originally serving only small businesses, the company found that it could achieve greater purchasing power while also serving a select audience of outsiders. It was this change that produced growth in the business club industry. However, it wasn't until 1983 that Costco Wholesale debuted in Seattle, Washington. This company made history, becoming the first company to grow from zero to 3 billion in sales in less than 6 years. Costco and Price Club merged in 1993, operating under the name PriceCostco,They managed to open 206 stores generating 16 billion in annual sales.
It was in 1997 that the name was shortened to Costco, since then the company has expanded around the world, reaching sales this last fiscal year exceeding $ 64 billion. Currently Costco operates 671 stores, in North America it has 474 stores between the United States and Puerto Rico, 88 in Canada and 34 in Mexico. For its part, Europe has 26 stores in the United Kingdom and one in Spain. Asia, has 20 locations in Japan, 11 in Korea and 10 in Taiwan. Australia for its part, has 7 establishments. In addition, electronic commerce operations must be added, through websites in the United States, United Kingdom, Mexico and Canada. (Finance.Yahoo.com, 2015).
According to Bloomberg (2015), James Sinegal was founder and CEO of Costco between October 1993 and January 2012. He currently holds a position as an independent director and advisor for the company. Sinegal's importance and influence to Costco Wholesale is based on exceptional leadership. This executive, with an outgoing personality, was for many, directly responsible for the success in the development of this American organization. His 30 years of hard work for the company, coupled with a "humble" style in the management of the company, rather, emulates a form of leadership that can be easily transferred to small business administration, he notes; Weinmann (2011).
Sinegal, focused his energies on hiring and training the best possible talent, in fact, it is the human resource, the basis of the organizational success achieved by Costco, according to himself. Within the concern for employees, Sinegal has been in charge of offering the highest level of salaries in the industry, in addition to a complete package that includes health insurance and paid vacations (among others). For many, a disadvantage that increases costs, however, for this visionary, it is a competitive advantage and investment that lasts over time. For Sinegal, treating employees in this way is not an altruistic act, but rather a good way of doing business, as he points out; Weinmann (2011).
The key to success in Sinegal's current administration and collaboration is based on an open communication style, that is, a style that contributes to collaboration for teamwork, especially, to share ideas and develop growth strategies. On the other hand, the close style of this executive, contemplated visits at least once a year to each store that the company operates. For Sinegal, mistakes are opportunities to learn and improve organizational operations. Its business philosophy is based on learning from mistakes and maintaining a level and attitude of permanent innovation. James Sinegal believes that interacting with customers and employees should be no different for a person operating individually, or if they are in charge of thousands of employees.The feedback collected from users and employees was a constant that Sinegal passionately promotes.
1.2 Organization
Currently, the board of directors is chaired by Jeffrey H. Brotman, who was one of the co-founders of the organization, along with James D. Sinegal, who currently serves as one of the twelve independent directors of the company.. For his part, W. Craig Jelinek is the president and chief executive officer of the company (CEO), seconded by executive vice president Richard A. Galanti, who serves as CFO (Chief Financial Officer).
Costco Organization Chart (Organizational Chart of Costco Management, 2012).
| CFO |
| Chief Information Officer |
| Board of Directors |
| CEO |
| Merchandising |
| Construction |
| E-commerce and publishing |
| Chief Operating Officers by Operating Divisions |
| Distribution and Traffic |
| Administration & Chief Legal Officer |
| Pharmacy |
| Operations |
| HHRR & Risk Management |
| Regional Vice-Presidents |
| Warehouse
Managers & Supervisors |
| Warehouse Floors Workers |
| Ancillary Department Workers |
From a geographical perspective, Costco Wholesale Corporation is subdivided into 4 regions: Western Europe (United Kingdom and Spain), North America (Canada, Mexico and United States / Puerto Rico), Asia (South Korea, Japan and Taiwan) and Australia. However, and from an operational perspective, Costco presents an organizational structure, focused on operational efficiency and the efficient interrelation of its different divisions and geographic areas.
- Market analysis
2.1 Market in which the Company operates
The segment for the retail discount business is an industry that moves 390 billion dollars a year (Trefis Team, 2014a). This style of business began with the idea of providing low-cost merchandise to develop a solid base of loyal customers. The largest representatives of these types of companies are Costco Wholesale, Sam's Club (a division of Wal-Mart) and BJ's Wholesale. Costco, achieved an amazing and rapid growth, reaching its first billion dollars in the first 3 years of operation. Some consumer reports suggest that users of these membership systems can save up to 55% compared to using traditional retail businesses.
The result and development of these shopping clubs has been remarkable. In the United States, for example, the period between the years 2001-2011 resulted in an increase of around 47% in sales of general merchandise stores. However, the so-called discount clubs, reached a growth of 135% in the same period. As a consequence of the attractive incentives that this type of company offers, it is expected that this segment will continue to grow regardless of the turbulence in the economy, in fact, in the period between 2008-2009 (economic recession) these companies showed growth sustained.
The explanation for this performance is based, in part, on sales to small entrepreneurs (better economic conditions increase sales), but in addition, a situation of economic instability may encourage families to buy in large quantities to obtain better discounts. The discount business industry is expected to continue growing in the future, with Costco emerging as the main leader.
Costco has shown a healthy growth rate throughout its history, even beating estimates that had been forecast in years marked by global economic instability. Only 3% of its sales come from the e-commerce system, which means that there is room to improve this form of commerce and, consequently, increase sales in the medium and long term. On the other hand, its presence in China represents a good growth opportunity for the company, and this, due to the growing interest in that Asian country to consume foreign products.
The growth estimate for Costco Wholesale in the coming years is positive. The gross sales projection for the next few years would be:
| Estimates for Years | 2015 | 2016 | 2017 |
|
Gross sales |
120,210 b |
130,267 b |
142,541 b |
Source: 4-traders (2015)
Based on these data, an increase of about 8.1% average per year can be estimated for Costco for the next 3 years. Where the 2015 period should show an increase of around 6.7%, 2016 with 8.3% and the 2017 period with 9.4%. From another perspective, the Food Retail Industry Profile (2014) indicates that the retail food industry in the United States has experienced moderate global growth in the last five years, however, the industry is expected to continue growing but at a slower pace. strong over the projected 2018 period.
The case of Costco Spain is emblematic, on May 15, 2014 the first store was opened in that European country, in Seville. The company operates in the same way as in the rest of its warehouses and different countries where it has a presence, that is, as a “shopping club”. Such was the job expectation of the Spanish for this new business, that for the 140 positions advertised for this branch, there were more than 148,000 applicants. A situation that represents, on the one hand, the high percentage of unemployment in Spain, but also the great interest to work and be part of an organization that offers the highest level of wages in the market and, also, an attractive benefits package for its employees, as stated; Martinez-Ribes (2014). The interesting thing that Costco's presence in Spain shows is, for example, that some customers,Due to a notorious impoverishment of their purchasing power (due to the economic crisis), they have been organized in such a way that they can group together and buy a box of a certain product, to later be divided between the parties, and in this way, access the low prices offered by the American multinational.
2.2 Clients
This company attracts the highest net worth customers in the retail discount club industry. The average individual income of its clients is $ US 75,000.00 annually, where more than 30% of its partners have an income of $ US 100,000.00 or more. Costco reaches a target market where two segments are distinguished: small business owners and the general public.
Although Costco Wholesale has traditionally focused its efforts on attracting older customers and customers from areas located in the suburbs of large cities, the truth is that these days, this organization is working strategically at attracting members from a demographic that represents a younger age. In fact, this company is developing an attraction strategy for new and young customers, as a consequence of greater competitiveness in a large digitized environment, such as competitors of the stature of; Amazon Prime.
To cope with the strong new kind of competition, Costco has developed a program to partner with Google in the San Francisco Bay area. Through this company, the company has debuted with a service that offers home delivery of goods the same day of purchase, constituting an important advantage over its competitors. In addition, this strategy to attract young members has forced Costco into the recent foray into the world of social platforms. A greater presence is expected in this type of "virtual showcase", to the extent that it improves its information technology system and the electronic commerce site, as indicated; González (2014).
Another form of marketing that Costco is using to attract a younger segment to its operations is, through the incorporation of organic products, for example; meats and big bundles of kale. All these policies aimed at attracting new customer segments do not imply a change of course for the company at all. Attracting millennials is a strategy that seeks sustained and long-term growth for this organization. However, the company is not changing the direction it has taken since its inception, simply, Costco has recognized a change in the consumption patterns of retailers, especially, because there is a large invasion of online retailing and, this organization will not hide its "head in the sand."
Some of the challenges that this company must face in its quest to attract young customers is based on the size of the homes and / or apartments that this segment uses to live. These types of warehouses are focused on meeting the needs of families living in peripheral areas and, consequently, have enough space in their homes to store large boxes with paper towels, for example. This situation should be considered by the company in a special way, since the demographic group represented by millennials prefers to live in urban areas and small apartments, according to the analyst; Dan Geiman (s / f), cited by Gonzalez (2014). However, Costco has many possibilities to increase its e-commerce segment, in addition,the increase in organic products is seen as a long-term policy. Ultimately, anything that is done to lower the age of your target market is going to be something positive for the future of the company.
2.3 Competitors
In the retail industry in general, and particularly in the retail discount business or club segment, there are three major competitors: Costco Wholesale, Sam's Club (a division of Wal-Mart), and BJ's Wholesale Club. Costco is the chain that counts that it sells to clients with greater purchasing power ($ 75,000- $ 100,000 annually). These retail discount companies are not actually a type of warehouse, rather, they represent an innovative business model. The competition between these discount clubs is based on factors such as: Price, quality of merchandise and selection, customer service and the distribution of their stores. However, these discount clubs also compete with a wide range of other retail companies, including; Wal-Mart (with its super centers), Dollar General,general merchandise sales chains, supermarkets and gas stations (among others).
The membership club industry has grown dramatically around the world. However, it is between the United States, Canada and Mexico where their stores are mostly located. Market share for this industry is:
Source: Aguilar (2014)
Companies that adopt this “pay to buy” style of membership achieve two important advantages: differentiation from the competition and customer return. One of the characteristics that represents the success of this business model is given by the high percentage of renewal of the membership. Costco Wholesale in the United States maintains over 90%. Renewal of its client-members.
Of the three discount retailers, Costco is the chain that collects the highest annual revenue, growing at a faster rate than Sam's Club in recent years, with this competitor company representing the greatest threat. In fact, there are certain elements that could put Costco Wholesale's leadership at risk. For example, competitors' annual membership is noticeably lower: Costco charges customers $ 55 per year, BJ's $ 50, and Sam's Club only $ 40, giving the latter a considerable competitive advantage. On the other hand, the membership for executive members, which allows access to reward programs, has a value of $ 110 at Costco, but its main competitor (Sam's Club) charges $ 100 and with similar benefits. From the perspective of store distribution in the United States,Costco has 474 stores in 43 states, however there is a large concentration of these in California. Sam's Club, for its part, has 620 stores in 47 states and Puerto Rico, but distributed proportionally throughout the country.
A distinctive feature of Costco's main competition is the sale of Apple products. Sam's Club has an important competitive advantage, it is the only discount retailer that markets this prestigious brand, attracting a different target segment to the competition, mainly young executives, university students and younger clients standing out. Other aspects that make Costco competition a real threat in the leadership of the industry, has to do with home delivery, installation and technical support. Sam's Club, has earned a respected place in this field. However, Costco is not far behind, and is improving these types of services, strategically partnering with Google in San Francisco to begin shipping to home the same day of purchase.Costco's competition does not give up in any operational area, even less, in relation to the groceries they sell, in fact, some specialized studies have found that Sam's Club has the cheapest prices among the three competitors (Trefis Team, 2014a).
- Legal Strategies
3.1 Legal Form of the Company
Costco Wholesale Corporation (CWC) with legal address at 999 Lake Dr
Issaquah, WA, 98027 United States, is ranked 19th in the Fortune 500 ranking for the 2014 period, climbing 3 positions from the previous year (Fortune 500, 2015). This company went public on December 5, 1985, with an initial share price of $ 1.67. Trading on the NASDAQ stock exchange under the symbol “COST”. As a Corporation, this entity has an independent legal rank (legal person) and belongs to its shareholders, which means that the entity itself has its own rights and responsibilities, not its shareholders, in case of responding to the Law. regarding your actions, tax payments, debts, etc.
This company and because it carries out international operations, is constantly subject to risks associated with legislative, judicial, accounting, regulatory and political aspects. This complex scenario demonstrates the vulnerability to which these multinational organizations operating within a global context may be subjected. Each country and region of the world has legal aspects that are not necessarily uniform, that is, if the company is not capable of understanding and respecting the laws of the territories where it operates, it could easily be adversely affected, putting the operations of the company at risk. business, financial situation, the results of these and even their permanence in a specific territory.
There is a varied and extensive set of external factors that the company cannot control, both in its operations within the United States and abroad. International regulations could even negatively affect business results. Changing laws, political conditions, economic instability, regulatory restrictions, foreign exchange and exchange rate regulations, fiscal monetary policies, adverse tax payments, countries less stable than the United States, etc. They are just a sample of the challenges that Costco Wholesale Corporation must face within an international legal and regulatory framework (Costco, 2014a).
This corporation is subject to a complex and extensive set of laws and regulations at the federal, state, regional, local and international levels. Laws related to the protection of the environment, have been transformed, for example, into elements specially protected by the corresponding authorities. There is a detailed regulations manual that manages the correct handling, storage and treatment of hazardous and non-hazardous materials. Costco, aware of the importance in this matter, and in an effort to protect its business, has developed a strict code of corporate ethics where it is committed to: Obey the Laws.
The company declares in its code of ethics that the Law is irrefutable, therefore, there is a moral and imperative commitment to obey the laws. This organization conducts its business in full compliance with the laws of each community where it operates. The company is committed to: compliance with all laws and legal requirements, respect for all authorities and their positions, compliance with all security and protection measures for the products sold, surpass the ecological standards imposed by the communities where it operates., comply with all applicable wage and hour laws, respect all antitrust laws, conduct business with foreign countries legally and appropriately under national and international laws, operate under the ordinance of the Corrupt Practices Act,that is, without offering, giving, soliciting or receiving any form of bribe or commission from any person or, paying to accelerate government action, or act in violation of foreign policy (Corrupt Practices Act.). The company also encourages the submission of reports to the Securities and Exchange Commission, in addition to other public communications of the company, doing so in a fair, accurate, understandable and timely manner (Thomson, 2009).understandable and timely (Thomson, 2009).understandable and timely (Thomson, 2009).
In the same way that Costco respects the legislation in the different communities where
3.2 Main Legal Problems the Company Has Had
The company is or could be involved in different audits and legal procedures that, depending on their resolution, could affect the business, financial situation and results of operations. Costco operates under a complex legal and regulatory system, the company is and may be involved in legal proceedings and audits that include or involve: “Grand Jury” investigations, governments or government agencies, consumers, employees, unclaimed property laws, torts or other type of litigation.
Omega vs. Costco case: According to McCormak (2011), the United States Supreme Court initially ruled against the US retailer in 2011. Omega, a Swiss company that manufactures luxury watches, sued Costco Wholesale in California under the alleged violation of copyright law in the United States. The problem was generated when the North American multinational, bought at low prices in New York, around 500 fine watches of this brand that came from South America. Costco sold the watches at prices considerably lower than the market average (40% less). The Swiss company accused copyright abuse since the North American company did not request permission to sell its products at such low prices, not respecting the market price suggested by Omega to retailers.
However, as newsflash, Northrup (2015), has just announced that the dispute between Costco and Omega that they have dragged on for a decade, has just taken a definitive turn. The watches marketed in 2003 would not be violating the Copyright Law. The court notes that if Omega has trouble getting Costco to market its products at low prices and obtained in the "gray market", then it should use a different distribution tactic to prevent this from happening.
Michael Kors vs. Costco case: in June 2013, the American brand Michael Kors sues Costco, because the latter sent an email to its customers offering luxurious products where there was a photograph of a Michael Kors wallet, which Costco has never marketed. The lawsuit was based on terms of misleading advertising, as Costco does not sell this brand, it is argued that there is a deception of customers and, the company that manufactures these luxurious handbags considers that it is essential to protect the reputation of its brand. These companies resolved the matter by reaching an agreement in July 2014, in a Federal Court in New York. The details of the agreement reached have been kept private by both parties (Vehling, 2014).
These days, Costco has been the target of a lawsuit for $ 50 million in California, due to an alleged non-payment of overtime to workers. The lawsuit filed by Mary Pytelewski states that the company kept workers locked inside the stores for 15 minutes after the clock was set. The company states that keeping employees inside sheds until supervisors complete closing routines was a necessary measure for store security. This action is a violation of the United States Department of Labor FLSA (hours and wages section), as indicated; Mundy (2011). In December 2010, a federal judge in California ruled on the original lawsuit for the overtime pay case against Costco, ruling that it could proceed as a California state action and,also, as a collective action at the national level.
Another legal problem materialized in August 2014, the Employment Equality Commission (EEOC) in Chicago, filed a lawsuit against Costco Wholesale. This organization violated Title VII of the Civil Rights Act of 1964, which protects employees against sex discrimination. A company employee was constantly being harassed by a company customer. After communicating this situation to the leadership on several occasions, there were no satisfactory answers, in fact, they asked him to be kind to the company partner. The employee in question was so harassed by this person that she had to request a protection order from the police. After an investigation of the events, the EEOC concluded that the efforts made by the employee were not enough for Costco,that the company fostered a sexualized and hostile work environment for female employees. The lawsuit is ongoing and is based on Costco's failure to stop a customer's ongoing sexual harassment of one of its young employees, EEOC (2014).
- Financial and Accounting Analysis
4.1 Balance Sheet
According to the financial reports set out in Annex 1. The company shows a healthy financial situation, where the liabilities of the last 3 years represent the obligations that the company has acquired in projects such as the acquisition of machinery, but especially in the investment of new stores that Costco Wholesale has made. The assets of the last three periods (2013-15) reflect that the company has a positive situation, generating profitability for its partners and maintaining a constant process of economic solvency.
Calculating Three Key Ratios For Costco Wholesale
Current Ratio (2014): Current Assets / Current Liabilities
17,588,000 / 14,412,000 = 1.22
According to the analysis of this ratio and, technically speaking, a result of 1.22 represents a good performance to measure the solvency of Costco Wholesale in the 2014 period. A result greater than 1 (or between 1 and 2) is considered positive because it represents that the company has a good capacity to pay its debts in the short term. Conversely, a quantity less than 1 could be considered negative or bad. These data are of special importance for the company's creditors, however, knowing that there is room to comply with the company's obligations is good news for all stakeholders.
Return on Sales (2014): Net Profit / Sales
2,058,000 / 112,640,000 = 1.83%
The result of this ratio shows a relatively positive situation for Costco Wholesale. The relationship between prices and costs represents the profit that the company could achieve depending on the sales volume. 1.83% is considered positive, however the company should be able to increase this percentage and achieve an even higher profit margin.
Turnover of Total Assets (2014): Sales / Total Assets
112,640,000 / 33,024,000 = 3.41
The ratio that shows the turnover of the company's assets, results in a total asset turnover of 3.4 times per year. This result indicates that Costco covers investments 3.41 times through sales income, or in other words, the company obtains 3.41 times the investment made. Result considered positive, however, the yield should be increased to originate an increase in sales with the least possible investment.
4.2 Income Statement
The financial information presented presents a company that grows and develops efficiently. Costco Wholesale, shows an increase of 7% in 2014 in its net sales, compared to the previous period. This increase is based on around 4% in sales attributed to the opening of new stores in the 2013-2014 period. On the other hand, the company had a negative impact on its growth percentage, attributed to situations such as variations in the price of oil in the world and the negative difference in currency exchange, as stated in Costco (2014b).
Income from partner membership represents 2.20% of net sales. Costco Wholesale membership fees increased 6% in the 2014 period. This increase is charged mainly to the acquisition of new customers originating in the stores that were inaugurated, but also increased to those who had to renew their membership in this period.
The gross margin of net sales increased by 4 points compared to the 2014-2013 period (10.66% 10.62%). The period between the years 2013-2012 had a greater increase, reaching 7 basis points. On the other hand, general and administrative expenses increased 7% in the 2014-2013 period. This increase was mainly due to the increase in operating costs, where the rise in the value of oil and investment for the renewal of information systems in the United States, made up the largest percentage of this increase.
The net income of the company in the last three years was: 2,058,000 (2014), 2,039,000 (2013) and 1,709,000 (2012). Which represents a moderate but permanent increase. Costco has also increased its revenue per square foot in the United States, from $ 818 in 2008 to $ 942 in 2013. Historically, the company has shown sustained growth over time, reaching 6% in the 2012-13 period, 12% the previous period and 14% in the period 2011. Costco's operations in the United States are responsible for 72% of total sales, followed by 16% of its stores in Canada and 12% by other international operations.
Graph of% of Sales in Costco International Operations:
Source: Costco (2014b)
4.3 Share Price
Costco Wholesale Corporation (COST) -NasdaqGS (As of January 23, 2014; in USD).
Previous Close: 141.27 Daily Range: 140.87 - 142.31
Open: 141.59 52 Week Range: 109.50 - 146.82
Offer: N / A Volume: 1,700,402
Demand: 162.00 x 100 Average Volume (3m): 1,945,410
Target est 1a: 147.09 Market Cap: 62.57MM
Beta: 0.82 Price / Earnings: 29.53
Next benefit date: N / A EPS (ttm): 4.81
Dividend and Yield: 1.42 (1.00%)
Source: Yahoo Finance (2015)
Daily Graph (January 23, 2015) of Stock Price Fluctuation
. Source: Fusion Media (2015)
Graph of Stock Price Fluctuation in a Year (January 2014-January 2015)
. Source: Fusion Media (2015)
Shares Price Fluctuation Graph 5 years (2010-2015)
. Source: Fusion Media (2015)
According to the information collected and analyzed, Costco Wholesale's stock performance has been positive and permanent over time. These data allow forecasting a long-term upward trend, which presents a good investment opportunity. The situation in the short term is somewhat different. COST has shown that there have been periods of time where the short-term fluctuation has been insignificant, however and in general, the company's shares show a positive and constantly rising performance. This upward trend does not show a possible change in direction, COST does not show signs of exhaustion, which allows us to speculate on an upward trend in the long term.
- Products (or Services)
5.1 Main Products
Costco markets about 4,000 products at its stores. A reduced amount if compared, for example, with the 150,000 that WalMart has in its Super-Centers or the 40,000 that are offered in a typical supermarket (Edleson, 2014). The wide range of selected products covers a range that goes from; meats, caviar, televisions, digital cameras, dairy, games, toys, musical instruments, fans, cleaners, vacuum cleaners, books, CD's, DVD's, kitchen implements, chandeliers, automobile accessories, prescription drugs, photographic development, gasoline, detergents, preserves, beverages, wines, beers, tools, over-the-counter medications, office supplies, computers, telephones, travel, flowers, pet products, etc. The normal thing is to find in each store of the company,pharmacies, food centers, photographic centers, optical and hearing care centers, gas stations, printing and copying centers (among others).
Of the products sold by the company, approximately ¼ are in constant change, many of which are brands of good prestige and marked elegance. The idea is to offer luxurious products at irresistible prices for customers, however, these exceptions have a limited inventory. The division by departments or product sections is divided as follows:
| Food: fruits, vegetables, meats, fish, seafood, bakery, delicatessen, and packaged food products. |
| Dry: sweets, snacks, tobacco, alcoholic and non-alcoholic beverages, cleaning products and institutional supplies. |
| Hard Line: home appliances, electronics, health and beauty products, computer, office, patio and garden supplies, sports products, furniture and vehicle supplies |
| Soft Line: clothing, home appliances, jewelry, decoration, and smaller appliances |
| Accessories and Others: gasoline, pharmacy, food court, optical center, hearing center, photo development and travel. |
Source: Costco (2015b)
Sales by product category:
Source: Ibrahim, Mitchel and Uraguchi (2015)
A special mention is the recent integration to its group of products offered the organic range. The company is successfully incorporating meats, vegetables, vitamins, healthy meals, snacks, etc. In its organic version, which has been accepted with great success by specific target segments (Costco, 2015c). The optical services offered are characterized by having specialized personnel, designs of important brands for lenses and high quality, contact lenses, etc. For their part, pharmacies have a free membership system for their members, allowing significant savings in the comparison of prescriptions, free programs to check the heart and bone density, vaccination service and,the ability to access thousands of generic products for less than $ 10 per month for a 90-day supply.
Hearing services are state-of-the-art in terms of digital hearing aids, and free hearing exams are offered to members. For its part, the exclusive Costco Kirkland brand, has managed to position itself as a leading brand in the United States regarding its quality and price, which includes among its products from men's clothing, cleaning products, paper towels, food for dogs, etc.
Some highly prestigious brands prefer not to sell their products in Costco stores, however, this company and, within the Law, markets certain luxury brands that it obtains, through the "gray market" or another retailer that wants to get rid of certain low-turnover merchandise. On the other hand, a distinctive feature of Costco Wholesale is the sale in large quantities of its products, which implies a very special presentation and storage in its racks, the company stores the merchandise on the sales floor and displays it in large quantities. For each element, in this way, the work required for handling and stockpiling of merchandise is reduced.
Costco has direct business relationships with a significant group of recognized national and international brands. Among which are: Coca Cola, Canon, Casio, Samsung, Panasonic, Nestlé, Colgate-Palmolive, Levi Strauss, Hewlett-Packard, Procter & Gamble, Sony, Michelin and other manufacturers that supply their Kirkland brand.
5.2 Production
Costco Wholesale Industries, is a division of Costco Wholesale Corporation, this division is responsible for the special packaging of certain foods, optical laboratories, meat processing and jewelry distribution. The company is in a constant attitude of improving operations and increasing efficiency. The packaging of goods or the handling of meats represent a significant percentage of the products that the company sells.
In the United States, Costco buys most of the merchandise directly from the manufacturers, who, send the orders to the same warehouses, or direct the products to one of the nine collection centers that the company owns, which serve as distribution points for nearby stores. In the case of products that arrive from the manufacturers in large quantities and in containers, the company redistributes these goods in individual portions, in addition, it relocates them in record time, generally less than 24 hours. These merchandise when they arrive at the designated stores, go immediately to the sales room. It is a minimum quantity that is kept in the warehouse, reducing costs associated with multiple steps in the distribution channels. Costco has direct purchasing relationships with manufacturers, that is,it does not go through distributors. In addition, the company has managed to implement low-cost operational logistics, promoting efficient packaging in its own processing plants, developing an efficient and sustainable structure: a competitive advantage difficult to match.
Kirkland is Costco's signature brand and has already been in progress for 20 years since it was launched as an exclusive brand for the company. Currently this corporate brand is part of 20% of the products that can be found in stores. Through Kirkland Costco can develop new products, new product categories, and new products from existing categories, allowing the company to control the quality of what is produced under the institutional brand. On the other hand, the Kirkland brand contributes to raising quality standards and lowering the prices of the competition in national brands. Kirkland is the product of a close collaboration between Costco Wholesale and those producers who develop high-quality products for the company. An example of this is the case of Kirkland canned tuna.The company in association with Bumble Bee, created a very competitive and high quality product; a canned tuna with much more meat and less water or oil. The partnership has been a total success for both companies, the company under the Kirkland brand managed to create a higher priced but better quality product, based on a different cut of fish, and Bumble Bee for its part, managed to introduce a new product, under its brand and inspired by the basic specifications that Costco implemented.and Bumble Bee for its part, managed to introduce a new product, under its brand and inspired by the basic specifications that Costco implemented.and Bumble Bee for its part, managed to introduce a new product, under its brand and inspired by the basic specifications that Costco implemented.
Costco owns a 250,000 square foot meat processing factory in California's San Joaquin Valley. This plant is relatively new and stands out for its maximum standard of cleaning and quality control (Madrak, 2012). The security measures for the handling of meats are extremely demanding, for example, this processing plant has in its stations state-of-the-art technology for sanitation stations for hand washing, which allow those in charge of the plant to control so that each employee use them a minimum of four times a day. In addition, shipments of meat from abroad must present a certification that indicates that the product has been properly tested, which does not present any type of contamination. Costco does an independent inspection anyway.The company will return any product that presents some type of sanitary abnormality. Returns are almost non-existent, less than 1% of the products have problems.
The fruits and vegetables are sent to the stores from the production sites six days a week, which contributes significantly to the freshness and quality standards that the company endorses. On the other hand, Costco produces, bakes and packs food in its stores daily, allowing it to maintain a high level of freshness in its tarts, breads, cakes, fruit trays, natural juices, cakes, etc. The company has different packing centers, two meat processing plants and two optical laboratories, which operate efficiently and allow existing stores in the United States to be supplied with their products.
The chicken breasts are vacuum packed and skinned at the company's facilities in Seattle. Packaging consists of accommodating two pieces per tray, allowing customers to use only what is necessary at a time. Costco reduces the amount of packaged parts as much as possible, thereby helping to save resources to keep prices low. From the perspective of seasonal products, the company promotes an early purchase policy, that is, it should not be surprising to see Christmas products in August, the philosophy is based on the FIFO (fisrt in, first out) inventory control technique, which which allows the company to maintain competitive prices, eliminating warehouse costs or movements of surplus products. This stationary segmentation includes decorations for the holidays,winter clothing or supplies, back-to-school merchandise, barbecue grills, outdoor accessories, lawn mowers, and garden supplies (Costco, 2015c).
The packaging of the products at Costco will always be organized in larger quantities than conventional stores (with some exceptions), for example, the common thing is to buy two servings of bread, a tray with two cauliflowers, a package with two dishwashers, an extra large jar of mayonnaise, etc.
5.3 Research and Development
New product development for Costco is primarily focused under the Kirkland own brand. But it is done through collaboration with other production companies. Kirkland promotes research and development of new products. This own brand represents 25% of the joint sales between the national and international market of Costco Wholesale. The company has adopted as a strategic policy to associate with production companies and develop joint investment programs for the development of new products nationally and internationally (Costco, 2014b). The company has partnered with more than 60 suppliers around the world, and it is hoped that through these partnerships it will be possible to research and develop flagship products that the company will offer in the future.
Costco, on the other hand, makes constant efforts to develop solutions for issues related to energy sustainability, refinement of packaging design, and merchandise distribution systems. In the short term, the organization is focused on developing a program that allows recycling of waste from the company's operations. Due to the nature of the business, this organization has been developing the implementation of a more efficient computer program, which will allow to process transactions, summarize results, and manage the business effectively. Costco has been permanently focused on making significant investments in its information and technology systems, but also,there is a special interest in incorporating new trends and / or fashions into their stores.
- Website and Technology
6.1 Website
The Costco website is used mostly to advertise products, generate online sales, display seasonal items, display the day's deals, promote exclusive items and products with limited time (such as furniture and items of decor). Additionally, Costco uses its website to advertise its Costco-Travel site and the gasoline credit card. Another use of the company page is to display all the departments that exist in this, which are located in a ventricle at the top of the main page, warning page visitors of all the different varieties of articles and services available.
The company's website also allows users to purchase online, whether or not they have a partner membership (those who do not have it will pay an additional 5% on the price for partners, as specified on the same page, Costco (2015e)). The tracking of purchases made is also possible, an aspect that reflects the efforts of the organization to participate in electronic commerce by delivering electronic invoices and offering different payment options.
From an HR perspective, the Costco website could make better use of it, especially when it comes to recruiting new staff. The job opportunities section is in a very small font located at the bottom of the screen, but in addition, Costco is not specific about whether there are actual job opportunities, it only offers job descriptions, descriptions and general specifications. of each position, without specifying if there is a real opening for any of them. At first glance it seems that this is not the best way to recruit external workforce, especially since the company does not expose information related to the salaries offered, however,There is the possibility of completing the forms after opening a personal account on the company page. Unlike Costco, Publix for example (the supermarket chain), has an area on its website that is very attractive and easy to navigate for those interested in working for that company. This website organizes jobs to which you can apply in different areas; stores, pharmacy, information technology, corporate, industrial maintenance, distribution, manufacturing and administrative roles. The job description is in detail and those positions that are being offered in a “real” way are described in green letters, inviting an immediate application. In addition, it is structured in such a way that the navigation map to fill the online application is clearly described and,it is very easy to understand.
Costco's code of ethics is also not easy to spot on the home page. Rather, the public has to do a search with the terms "code of ethics" if they want to get to know this aspect of the company, as users enter the page, they must click on a hyperlink that will take the reader to an external page where the Code of Ethics for Costco is found, apparently, there is no efficient or expedited mechanism to read this document, which is so important for the organization. Another negative point of the Costco website is the inability to know the efforts that this organization makes in terms of social responsibility. The company simply does not use the website to promote this activity.
What the Costco website does show in detail is how to navigate the site, and carefully explains how to shop (by pre-registering). Payment methods, home delivery, extra costs (taxes, shipping), methods for shipping the goods, the size and types of products, the address where the products will be shipped, security, etc. The information that the page offers is abundant, the customer service has the possibility for consumers to write or ask any matter related to the experience of buying online, in addition, it has links to popular articles found on the Web. Costco clearly informs how become a partner of the company, the product return policy, product review, and ways to contact the company, in addition,of a complete list with the location of the stores in the United States.
On the other hand, Costco provides services to its employees on a website designed for them. For example, workers can access and keep up-to-date information related to their tax payments, banks, display of entry time cards, payment receipts, W-2s, special events, health benefits, food tips, discounts in gym memberships, etc.
According to Trefis Team (2014b), in recent quarters, Costco's online business has grown at a solid pace, supported by its website, various new mobile apps, and the launch of new online product categories. Following 24% growth during the first quarter of fiscal 2014, the retailer's e-commerce revenue increased by 20% in fiscal 2Q 2014. On the other hand, the company's e-commerce strategy, increased Product categories and better inventory management will help consolidate website traffic and online growth. About 80% -90% of the products offered on the Costco website are different from your store inventory, thus avoiding product cannibalization.Currently Costco operates e-commerce in three international regions; Canada, the United Kingdom and Mexico.
6.2 Information Technology
Undoubtedly, information technologies have been a tool that has allowed Costco Wholesale to maintain a capital productivity and an efficient communication system. The company's headquarters, located in Issaquah, Washington, is also the site of the Information Systems Division, led by Paul G. Moulton (Costco, 2015d). Modern computer systems, its first application for smartphones, the improvement of its website with new technology and the efficient use of smartphones are the main technological devices that allow greater productivity during the course of the day, but also are the tools that allow you to react quickly to unexpected situations.
Information technology for Costco has become a key strategy for business outreach. The company has invested significant amounts of money in the acquisition of computer systems and hardware. The information is online, the top management, for example, can collect reliable information about what happens in the points of sale and warehouses, without delay and about any store and / or all of these, the same regarding a product specific or a particular customer. Costco has managed to build a profitable and efficient technology platform, which has become a milestone for the company. This company has the collaboration (subcontracting) of the company Information Resources, Inc. (IRI) for some specific activities of the information technology service,as noted; RIS (2013). IRI's clients include 95% of the Fortune Global 500 companies in the retail and medical services modality, MAPR (2014). However, Costco has not traditionally bet on technological sciences all the success achieved in its development, in fact, the central emphasis in the company's operations has been placed on commercial strategies that have to do with the art of knowing how to buy and sell merchandise, as indicated; Thomson (2009).it has been deposited in commercial strategies that have to do with the art of knowing how to buy and sell merchandise, as he points out; Thomson (2009).it has been deposited in commercial strategies that have to do with the art of knowing how to buy and sell merchandise, as he points out; Thomson (2009).
The company has made further enhancements to the Costco Collaborative Retail Exchange (CRX) vendor information platform, which includes a category for tracking updates in real time and other exciting tools that provide a three-year historical view of retail trends. season and the competitive landscape of the company, according to RIS (2013). The CRX system was originally launched in 2004, these days, this technological tool provides a global solution for the point of sale category and supply chain monitoring. In addition, this platform provides the company's suppliers with consistent internal data, allowing efficient feedback and interaction between the parties.The category “service tools” provides critical performance and benchmarking activities. This new feature allows manufacturers to measure performance against the remaining categories, as well as against all subcategories and segments released by Costco. This new data allows manufacturers to identify trends in each category, track their performance, but also gain valuable information on the competitive landscape. Other advantages offered by these service tools are given by the ability to have a historical view of the seasonal evolution and the competitive landscape in the last three years, providing valuable information for promotional activities, product demonstrations and inventory quantities, RIS (2013).This new feature allows manufacturers to measure performance against the remaining categories, as well as against all subcategories and segments released by Costco. This new data allows manufacturers to identify trends in each category, track their performance, but also gain valuable information on the competitive landscape. Other advantages offered by these service tools are given by the ability to have a historical view of the seasonal evolution and the competitive landscape in the last three years, providing valuable information for promotional activities, product demonstrations and inventory quantities, RIS (2013).This new feature allows manufacturers to measure performance against the remaining categories, as well as against all subcategories and segments released by Costco. This new data allows manufacturers to identify trends in each category, track their performance, but also gain valuable information on the competitive landscape. Other advantages offered by these service tools are given by the ability to have a historical view of the seasonal evolution and the competitive landscape in the last three years, providing valuable information for promotional activities, product demonstrations and inventory quantities, RIS (2013).against all subcategories and segment released by Costco. This new data allows manufacturers to identify trends in each category, track their performance, but also gain valuable information on the competitive landscape. Other advantages offered by these service tools are given by the ability to have a historical view of the seasonal evolution and the competitive landscape in the last three years, providing valuable information for promotional activities, product demonstrations and inventory quantities, RIS (2013).against all subcategories and segment released by Costco. This new data allows manufacturers to identify trends in each category, track their performance, but also gain valuable information on the competitive landscape. Other advantages offered by these service tools are given by the ability to have a historical view of the seasonal evolution and the competitive landscape in the last three years, providing valuable information for promotional activities, product demonstrations and inventory quantities, RIS (2013).Other advantages offered by these service tools are given by the ability to have a historical view of the seasonal evolution and the competitive landscape in the last three years, providing valuable information for promotional activities, product demonstrations and inventory quantities, RIS (2013).Other advantages offered by these service tools are given by the ability to have a historical view of the seasonal evolution and the competitive landscape in the last three years, providing valuable information for promotional activities, product demonstrations and inventory quantities, RIS (2013).
Another area in which Costco has successfully ventured is the use of virtualization technology to save space, reduce costs and increase the agility of information technologies. The organization began in 2006 to invest in cutting-edge technology, some of the tools that the company has acquired are: Windows Server® 2008 Enterprise with Hyper-V, and Microsoft® System Center Virtual Machine Manager 2008. Through the acquisition of With these tools, the company can control IT spending, IT flexibility and manage its virtualized servers more efficiently. The complexity of the company's IT structure has grown along with the business, in addition to warehouses, the company maintains eight national and seven international offices. In this sense,As of 2011, the company included 13,000 HP Neoware thin client computers in its global network, and about 9,000 end-user computers. The corporate data center in Issaquah, Whashington, is home to 1,200 servers and a series of AS / 400 mainframes (Retail Customer Experience, 2011).
In its quest to be current in digital technology, Costco Wholesale has also introduced interactive reading in its monthly publication The Costco Connection. The company has implemented the Digimar Discover app, which allows readers to use their smartphones to scan photos and have exclusive access to detailed information on a specific item. The company uses this technology from Digimarc Corp. of Beaverton, Oregon. This provider company specializes in digital watermarking technology (watermarking), as stated; Soper (2013).
6.3 Production Technology
Costco is not a company that makes products in the strict sense of the word. However, this organization uses production technology to maintain, for example, efficient inventory levels, and state-of-the-art technology in its packaging plants or optical laboratories.
In December 2012, Costco in conjunction with information technology services provider Information Resources, Inc. (IRI), began sending daily information on sales and inventories produced the day before and on all products to their manufacturing partners.. This updated information allows suppliers to act immediately in the face of changes in the retail environment, which allows the identification, inventory adjustment and the rationalization of new product launches, RIS (2013). It is well known that an important competitive advantage that Costco has over the competition in its effective inventory control, because it is here where the importance of this technology lies in contributing to the objectives of the company.
Regarding its meat processing plants, Costco has implemented a quality control system of the highest known standard, however, these levels of health could not have been achieved without the efficient use of state-of-the-art technology. In this sense, the company has implemented a sophisticated X-ray system to improve sanitation tests and anti-microbial methods. On the other hand, the processing plants have a "high-tech" computer program of stations for sanitation and hand washing. This tool allows administrators to control that employees wash their hands, with a minimum of 4 times per work day.
- Human Resources
7.1 Personnel
Costco (as of November 2014) has a workforce of 129,000 employees in US stores, and a total of 189,000 employees considering the rest of the stores abroad, both in full-time and part-time positions. The workforce is distributed among the 671 stores that the company owns in North America and in the rest of the world.
| 474 stores in 43 United States and Puerto Rico |
| 88 stores in 9 Canadian provinces |
| 26 stores in the UK |
| 10 stores in Taiwan |
| 11 stores in Korea |
| 20 stores in Japan |
| 7 stores in Australia |
| 34 stores in 18 States of Mexico |
| 1 store in Spain |
Source: Costco (2014c)
From the perspective of the profile of Costco employees, the organization basically looks for three aspects in every hire that is made: Integrity, industry and intelligence, however, integrity is the most important. The company needs employees with technical and intellectual honesty, that is, people who understand that a criticism seeks to improve the organizational and / or operational processes for the entire organization. Employees must be willing to learn from those with more experience, the company seeks action over a rigid attitude, as he points out; Morris (2004).
Being able to join and be part of the organization not only implies filling out an employment application, but also, a rigorous control over personal background, anti-drug tests, and interviews that are marked to establish a profile oriented to the honesty of the candidates. For example, it is not surprising that the interviewee must answer the following question: What would you do if you find a $ 20 bill outside one of our stores and there is no one around?
On the other hand, the company is looking for flexible employees who are quick to adapt to the family atmosphere that the company treasures. Not for nothing, the company is among the national rankings as one of the best companies to work for in the United States. The organization is oriented to the inclusion of all social agents, that is, Costco employees represent all types of race, nationality, sexual orientation, sex, gender identification, age, religion, disability, pregnancy, marital status, political ideologies, etc.
The profile of Costco employees represents distinctive characteristics that the organization demands, for example, you must have ambition, energy, enjoy working as a team, have a fast pace of work with challenges and opportunities, strong service orientation, have integrity and commitment to excellence both at work and in personal life, (Costco, 2015f).
7.2 Human Resources Administration
According to Stone (2013), Costco, regardless of the economic instability of recent years, has been able to maintain a payment to its employees that is significantly higher than the competition or retail in general. Average hourly pay for your employees is $ 20.89 in the United States. Amount in stark contrast to the current minimum hourly pay of $ 7.25.
From a senior management perspective, the Chief Executive Officer (CEO) earns a much lower salary than most retail executives in the same position. With a full benefits package, the CEO of Costco has a salary of about $ 5 million annually, distributed in $ 650,000 in salary, $ 200,000 in bonuses, and about $ 4,000,000 in options for shares of the company (Gordon, 2013). Lower amount compared to the 20 million obtained by the CEO of Wal-Mart. The gap between the salary of the CEO of Costco, with respect to the average salary in that company is 48 times, a situation that contrasts with the 794 times that the CEO of Wal-Mart earns with respect to the average in that company. Short (2013).
Employees enjoy different benefits that the company grants them, among which are health and dental insurance sponsored by the company, where the favored ones pay less than 10% of the total cost of the plan acquired, with an affiliation of 88% of the labor force. For the organization, this is a very simple policy to explain and consists of keeping the human resource happy and loyal to the company, in addition to inserting more money into the economy and generating a healthier country. Costco also offers 401K retirement plans to its employees, as well as profit-sharing plans. The company even provides life, long-term disability, and accidental death insurance. For Cascio (2006), the return that the company receives is materialized in a more productive workforce,where only 5% of employees leave the organization after the first year of work and executives with a rate lower than 1%. Costco has an annual employee turnover of less than 17%, an unusual situation in the retail market where the industry average is around 44%. The organization has promoted this policy of benefits to its employees since it began its operations, what is sought is that employees can "have a life", through their work, but the most important thing is that people work in a positive environment, with efficiency and having the best possible human talent, hoping that they will remain with the company as long as possible, as indicated; Taube (2014).Costco has an annual employee turnover of less than 17%, an unusual situation in the retail market where the industry average is around 44%. The organization has promoted this policy of benefits to its employees since it began its operations, what is sought is that employees can "have a life", through their work, but the most important thing is that people work in a positive environment, with efficiency and having the best possible human talent, hoping that they will remain with the company as long as possible, as indicated; Taube (2014).Costco has an annual employee turnover of less than 17%, an unusual situation in the retail market where the industry average is around 44%. The organization has promoted this policy of benefits to its employees since it began its operations, what is sought is that employees can "have a life", through their work, but the most important thing is that people work in a positive environment, with efficiency and having the best possible human talent, hoping that they will remain with the company as long as possible, as indicated; Taube (2014).what is sought is that employees can "have a life", through their work, but the most important thing is that people work in a positive environment, with efficiency and have the best possible human talent, hoping that they remain in the company for as long as possible, as he points out; Taube (2014).what is sought is that employees can "have a life", through their work, but the most important thing is that people work in a positive environment, with efficiency and have the best possible human talent, hoping that they remain in the company for as long as possible, as he points out; Taube (2014).
Costco's corporate culture is based on the absence of employment status between senior management and other organizational levels. Everyone who works in this company wears a label with their first name, and it is this, (the first name) that is used to address people. Nobody has a private office with luxuries, nor, sofas or private bathrooms. The company seeks that all members of the organization understand how the business works, that there is a constant process of feedback and teaching, through the correct example. The company's philosophy is based on employees having the correct example of the leader, be it the warehouse manager or the chairman of the board.
Costco employees get quarterly salary increases until they hit the highest pay in retail. Employees at the headquarters in Issaquah, Whashington, are indexed in the company directory by first name, for example; Jim (Senegal), Jeff (Brotman). The parking lots at the headquarters are located and granted according to the seniority of the person, but in addition, no employee of more than three years in the company can be let go without the approval and dismissal by the CEO or Director of Operations, the same it applies to a provider of more than two years as indicated; Morris (2004).
The company has an internal employee training program called "The Costco Wholesale Perspective." This scheme is based on providing a global vision of the philosophy of the organization, background and fundamental information on its operations. With this, the company succeeds in involving employees and transforms them into well-informed representatives of the company. Costco closes its doors during Thanskgiving, through this gesture, the organization seeks to facilitate a family day for its employees, a situation that does not exist in most companies in the retail market. On the other hand, the organization promotes equality among its workforce, in fact, the company obtained an excellent score of 90/100 in the Corporate Equality Index of the Human Rights Campaign,an assessment of workplace policies, conducted by the LGBT community, it notes; Short (2013).
The company also maintains a labor hiring process that is accompanied by real development possibilities, not for nothing, more than 70% of its managers have started their careers as cashiers and / or floor employees. Generally speaking, the larger organizations become, the more they focus on their own concept and the less flexible they become. At Costco, they believe in procedures, however, the company seeks to create a basic operational framework, where some things are written, however, the company encourages employees to adopt an important level of independence that allows them to make their own decisions when be necessary. In fact, the company encourages a casual way of dressing for its managers (no tie, just long pants and a sweater), flat (simple) offices,where people are treated with respect and kindness, but also where the doors of the organization are open to suggestions and where everyone is treated with first names. This is an organization that does not want to differentiate between those who have an hourly wage, from those who perform administrative and / or managerial tasks. The company also offers diverse career opportunities in many different areas, both at headquarters and regional offices, careers such as; accounting, purchasing, graphic arts, journalism, information systems, human and legal resources, among others.This is an organization that does not want to differentiate between those who have an hourly wage, from those who perform administrative and / or managerial tasks. The company also offers diverse career opportunities in many different areas, both at headquarters and regional offices, careers such as; accounting, purchasing, graphic arts, journalism, information systems, human and legal resources, among others.This is an organization that does not want to differentiate between those who have an hourly wage, from those who perform administrative and / or managerial tasks. The company also offers diverse career opportunities in many different areas, both at headquarters and regional offices, careers such as; accounting, purchasing, graphic arts, journalism, information systems, human and legal resources, among others.
From a union perspective, Costco is a “union friendly” organization with their existence. More than 15,000 of Costco's employees are unionized, representing approximately 12% of the workforce. On the other hand, each one of those responsible for the stores has at least between eight and ten functional managers, of whom at least two of them have worked in different areas of responsibility within the warehouse, for example; in reception, membership, marketing, etc. Costco's administrative / managerial structure seeks to promote the fertilization of ideas, also allowing the younger generation of employees to handle greater responsibilities. The idea is that there is a significant rotation of the areas assigned to managers, for example,A hard product line manager can be moved to a different area, a manager can be moved to operations, etc. The organization seeks that employees have a greater and better understanding of the company. This is how Costco prepares and expands its management force.
From a leadership perspective, Costco is one of the best-managed companies in the industry with a management team that knows how to execute and is constantly innovating. The main characteristics of their human talent is their promotion to senior management positions from within the company. No stranger to the organization enters occupying positions of high responsibility, on the contrary, there is an average of ten years working for the company to obtain a position in senior management. The company holds one that other formal meetings, the idea is to avoid administrative bureaucracy to the maximum. The executives do not use official memos, the corporate politicking is scarce, the organization does not seek attention, for that reason they do not have press or investor relations personnel, however,the financial president can analyze the movements of the area, in this way, he can make sure that the sales figures receive a mention in surveys of the retail industry, according to what he says; Morris (2004).
7.3 Main Labor Problems that the Company Has Had
The company is not known for major labor problems. However, there have been isolated situations that have created more than one headache for the organization. For example, the case of the employee in California who sued (and won) the company for discrimination based on sexual orientation. In addition, there is currently a lawsuit that the organization discriminated against 700 women in promotions for positions of general manager of stores and, of advisor to general manager of the warehouse. The company is accused of not having published the positions that existed for the aforementioned jobs, as stated; Lang (2012).
However, the most serious problem that the company will have to face has to do with a practice used in the past, consisting of not letting employees leave the store until the managers have completely closed the warehouse. This situation has resulted in a nationwide lawsuit for non-payment of overtime, since employees had to wait 15 minutes after setting the clock out (Mundy, 2011).
Another aspect that the organization has been criticized by its employees is the favoritism that some managers have with certain workers. This is a negative aspect that the company needs to rectify, because many employees are demotivated by believing that they do not have real opportunities to advance in the company, or simply feel at a disadvantage with respect to promotion opportunities. Unfortunately, there is a perception of some workers who claim for a certain favoritism of those in charge and, which is based on personal relationships that are generated inside and outside the organization, as expressed by; Moskowitz (2014).
- Strategy
8.1 Mission and Vision of the Company
Costco Wholesale's mission is to offer its members quality products and services at the lowest prices on the market. In its mission, the company intends to contribute to the improvement in the quality of life of people, small and medium-sized companies, through the reduction of costs for daily use, as well as the resale and / or personal use of quality products with best prices in the industry.
The company and in order to achieve its mission, conducts the business following the existing code of ethics; obeying the law, caring for partners, protecting the workforce, respecting suppliers, and rewarding shareholders (Costco, 2015a).
The vision of the organization is focused on increasing the base of partners and stores around the world. This approach is based on the company's ability to increase profits by 25% per year, where human resources and appropriate market conditions play a leading role. The organization is focused on a vision that focuses on offering:
- The perfect products
- The appropriate location
- The exact opportunity
- Unbeatable conditions
- And, the best price
8.2 Objectives and Goals
The general objectives and goals of Costco are: to continue expanding the company to countries in which the company does not yet have a presence, to continue growing sales on the website, and to prolong the satisfaction provided to member-partners, offering products and services of the better level and quality (Barboa and Chacón, 2009).
The organization has established objectives in the recruitment of personnel; through hiring the best possible talent, treating them well and protecting them, giving them good jobs, professional development, and doing the right thing through them. From the perspective of managerial administration, the company has established objectives to continue promoting leadership from within the organization, constant training, growing its own talent and designing what is expected of employees. The business objective is to stay focused on the core business and to keep getting to know customers (knowing why they do business with the company).
8.3 Strategies
The traditional pillars of Costco's strategy are established by: Low prices, a limited product line and selection, “scavenger hunt” shopping style, non-existent advertising expenses, and more recently, sales on the company's website., and growth strategies.
Prices: this company is known for selling good quality products and well-known brands at prices much cheaper than the competition. The company imposes a profit margin that does not exceed 14% for the products they sell (including its private brand Kirkland, with a maximum margin of 15%), this is an important pricing policy if you consider and compare with the 25 % or 50% of margin used by the competition. The company will only have those products that can be purchased at extremely low prices, thus passing on the cost to its members. In addition, this company buys from manufacturers directly and in large quantities, which allows it to obtain not only the best prices on the market, but also, the company requires that producers do not sell to other retailers and / or wholesalers at lower prices.This aggressive negotiation tactic, coupled with an efficient inventory rotation system, is what allows the company to access and market its products at such low prices, as he points out; Thomson (2009).
Product Selection: Costco has developed a strategy to select a limited number of product lines. The company only sells a variety of 40,000 products, a quantity well below the 150,000 offered by competing companies. However, the range of products with which Costco operates covers a broad spectrum of marketing, ranging from medicines, meat and seafood to state-of-the-art products. The company, for example, offers only one size of certain products, experience says that for every 10 customers who need the product in question, only 2 will not buy it because the size is not adequate (larger), however, this company understands that having certain products in different quantities and / or sizes would imply that the management of the business would become very complex,which, would increase costs and would not allow to sell with a margin as low as it does today.
“Treasure hunt” shopping style: the company has incorporated this strategy in order to stimulate the sale of products that are constantly changing (1/4 of the total supply). The idea is that customers are in constant search and can purchase so-called “one-time” products. Many of the products that are included in this style of shopping are of very expensive brands and, that the company offers in offers that are impossible to reject, especially when it comes to luxurious and scarce items. It is common for customers to think that a product with these characteristics should be bought immediately, otherwise, the next time they go to the store it will no longer be there. Which is true, as noted by former CEO Jim Sinegal, cited by; Thomson (2009).Costco does not necessarily acquire this type of merchandise from final manufacturers, but it obtains them legally from the so-called “gray market”.
Marketing strategy: the company does not spend money on advertising campaigns or promotions of its products, through this rule the company can save 2% per year in its operational costs. The use of email and traditional, in addition to the company website, is the direct way that the company uses to promote certain products with its partners. When a new store opening is planned, marketers may make phone calls to potential customers to inform them about the opening, "word of mouth" advertising is the best showcase for the organization.
Growth strategy: the organization has been opening an average of 20 to 25 stores annually, however, these figures not only represent store openings in the United States, but also include stores opened around the world. Costco seeks to expand the membership base of its partners, an important part of the company's profits come from this source of income. The company has also adopted a modality consisting of adding 45,000 square feet to its stores, with the objective of highlighting and expanding the furniture and decoration department, but never moving away from the simple and no-frills style of its stores. Within the growth strategy, Costco has also included the development and exploitation of its Kirkland brand, growing from 400 products to more than 600 in recent years (Costco,2015a), (Costco, 2015e).
Sales on the website: this sales strategy consists of selling products to both partners and non-partners of the company, the latter must pay an extra charge. Products offered on Costco's website are generally not found in the store. The company has implemented this sales system for its consumers in the United States and Canada, which represents a sustainable vision for the future and with a strong impact on the company's annual sales. (Thomson, 2009).
SWOT Analysis (Costco Wholesale). According to the data collected, this analysis has been prepared.
| Strengths | Weaknesses |
| Low prices
Quality image on the market Integrity Honesty High quality of products Large number of partner-clients Employee loyalty (low turnover) Pay above the market level and benefits package Special discounts and coupons for good customers Sustained growth over time High level of customer satisfaction Free product return High% of membership renewal E-commerce Low wage gap between employees and managers It operates globally with its own stores and land Orientation to operational excellence Own product line |
Low presence on social platforms
Because they are large stores, they make growth in some urban areas impossible Little or no advertising Slow response to new fashion trends Limited product diversity |
| Opportunities | Threats |
| Expansion to international markets
Raid on social platforms Increase in e-commerce Introduction of higher quality brand technology items Include personal check-up in your collection boxes Extend your home delivery service Capture the attention of a younger segment Strategic Alliances |
Strong competition
Lower prices from competitors Global economic uncertainty Cheapest membership cost of competitors Competition threat to go international Widely different labor regulations in the countries where it operates |
Own Elaboration
Conclusions
Costco Wholesale is a different company. This successful organization has managed to position itself within the group of the best companies in the United States, however, this distinction is not only based on its spectacular financial results, but also implies a set of commercial strategies, unique and very difficult to level for the competition. However, the key to organizational success, for many, relates to their workforce. Costco has implemented a compensation and benefits system for its employees that far exceeds the rest of the industry. The idea behind this labor policy is simple; find the best possible talent, care for them, develop them, and hope they stay with them as long as possible. The organizational culture has been strongly impacted by this way of doing business,where treating employees well does not differ from the way customers and shareholders are treated. The company has managed to maintain a formidable and sustainable growth over time, it is expected that its growth will continue to achieve the objectives set and maintain the prominent position that the specialized media have designated it.
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