Analysis of Success of Costco Warehouse Corporation in 2012 - Case Study Example

Costco warehouse Corp in Introduction Costco Wholesale Corporation is considered the 7th largest membership warehouse in the world and the second largest in the US. The company was founded in 1976 in US and has its headquarters in Washington. Currently the company is facing competitions from Sam’s club and BJ’s wholesale club. However, since its inception Costco has been experiencing increasing profits thanks to its good management strategies. The good business strategies helped the company to grow from zero to $3 billion sales within a period of less than 3 years (Costco US). It is important to understand that the CEO of this company Jim Sinegal who is also the co-founder has been behind the surprise rise in sales and profits. This paper is going to analyze the success story behind this company and how it has managed to be very successful in 2012. 1. One of the strategy that this company has been able to utilize in order to attain success is to establishment of good employee relations. As a CEO Jim Sinegal managed to visit most of their stores. In a day he would visit 8-10 stores daily. As a CEO he was in charge to be a producer, director, and knowledgeable critic. The second strategy that this company has managed to use is the pricing. Following their mission, their pricing was aimed at encouraging customers to come to their shops. This means that their prices are always low. It is argued that the strong business relationship that Sinegal has with Wal-Marts CEO is a contributing factor to using this strategy. This is because Wal-Mart the largest merchandise producer in the US also utilizes similar pricing strategy. For quite a long time the pricing strategy for this company is to cap its markup brand name merchandise at 14% compared to other supermarkets which markup their merchandises at 20-50%. The company managed to design most of the basic products especially food to be equal or better quality than national brands. This was aimed at ensuring that the company provided quality goods at the least prices (Barrera). This strategy has been criticized by Wall Street Journalists as lowering the shareholders profits. However, the CEO of the company argues that their strategy caters for both the shareholders and stakeholders by providing them with quality products at the least costs while the company still makes higher profits. The other strategy that this company uses is the price selection. Most of the supermarkets like Wal-Mart would stock 40,000 or even 150,000. However, Costco’s strategy was to deploy only 3,600 active items in their shelves. Amongst the 36,000 only 85% are quality brand names and 15% are branded with the company’s private label Kirkland Signature brand which accounted for 20% sales in 2011 fiscal year. Jim Sinegal also managed to work on growth strategy of the company. The strategy involved increasing sales at existing stores by 5% or more. This would also be accompanied by opening more stores. This strategy saw the company advertise their company. In response it was noted that most customers spent more by 5-10 cents in that fiscal year. This strategy also worked to increase sales. All these startegies were good since they aimed at ensuring that the company made profits encouraging the shareholders to invest more into the business. In addition to this, the company managed to provide quality products to its customers. 2. Jim Sinegal has been able to establish some core values in Costco Company. One of its policies is to use cash cards. These cash cards are available in the warehouses which allow members to load them with money and use them to make their purchases without using cash. This method is one of the strategies that ensured that people who purchased the cards made their purchases in Costco stores only. It is also a win strategy since it denied the customers the opportunity of shopping from other supermarkets. The company also has a policy through their gas sales. Their gas sales allow only the use of American Express, Costco Cash, Costco credit cards, and debit cards. The company also came up with a policy of ensuring that their members may re-load a Costco Cash cards while nonmembers do not have this opportunity. Because of such policies many customers enrolled to be members to avoid spending more. Use of Food of Food Stamp The second policy that this company established was the use of food stamps. The company only introduced the use of food stamps after its stiff competitors BJ Wholesale Club’s started accepting food stamps. Return Policy Jim Sinegal realized that there is no need for any of its customer to go home with malfunctioned products. The company decided to offer full refunds for all its products. However, there was an exception of digitized products like TV, projectors, cameras, phones, computers and many others. Recently the company has managed to offer a 90 day period warranty. However, the company is still negotiating for a 2 year contract. The company’s official return policy states that, “we guarantee your satisfaction on every product we sell with a full refund. The following must be returned within 90 days of purchase for a refund: television, projectors, computers, cameras, camcorders. Touch screen tablets, MP3 players and cellular phones”. Besides this the company has also core values which it uses. The first principle is that members of the staff are under obligation to obey the law since the law is irrefutable. For this reason as a company they pledged to comply with all laws and other legal requirements. The other core value is that they must take care of their members. Costco membership is open to business owners in addition to individuals. The company believes that their members are key to their success and therefore should always thrive to make them happy. The other policy is taking care of the employees. This policy state that the company has the best employees in the warehouse and therefore wishes that they commit themselves to provide them with good rewards that enable them to grow and develop their careers. The company also works on a policy of respecting their suppliers. The company believes that their suppliers are their partners in business and therefore play a major role in the company’s success. In order for them to succeed Costco company must ensure that they respect them and offer them quality prices too. The company also values its shareholders and believes that they are very important stakeholders. The company believes that the shareholders are their business partners and their success depends on providing them with good returns on the money they invest. 3. By 2005, Costco was already offering higher wages to its employees than any other average company. This ensured that the company retained the most successful staff. By 2005, the company offered $11 per hour for meat cutters and $15 for truck drivers. During this time the government managed only $5.15 while other companies also paid at that rate. It is only recently in 2009 that the US government managed to catch up with those rates. However, this has proven to be a costly affair for the company but the good company policies has ensured that the company retains most of its best staff. The company has also been able to offer training for its employees and allowing them pay increase depending on their working levels. This system has encouraged competition and it is now possible for the employees of enjoy their careers. Besides this, the employees enjoy larger packages of compensation and allowances. For example, the employees are offered with health and dental care plans, convenient prescription pickup of Costco’s pharmacies with co-payments of only $3 for generic drugs and 15% for brand name drugs which are also subjected to minimum co-pay of $10 for he branded drugs and a maximum co-pay of $50. These are just but a few of the reward systems placed at the company. Other rewards also come in form of cash and allowances at work stations. It is not surprising to see these employees getting well compensated. This is because they work for it. It is also noted that the good working policies in place has contributed for a larger financial resource. Moreover, the company is also enjoying the competitive advantage of sales and this has allowed them to channel part of their profits to provide compensations for its employees. It is so important to motivate employees since motivation has a direct correlation with productivity. Jim Sinegal also believes that by can providing advancement opportunities for his employees then he will be sure to have continuity for his business. This is the reason why his employees are better compensated than Sam’s Club and BJ’s. Sinegal believes that this is a retention strategy as well as a means of ensuring that your employees remain loyal and committed to their work which consequently leads to better results. The manager confesses that 68% of the warehouse managers enjoy experience since they started the company as hourly employees. The incentives offered by the company have also been able to tie the employees to productivity. The combination of open-book management with profit sharing and incentives has ensured that works increase company’s profits since this would consequently lead to their own income increment. Works Cited Barrera, Jody Heymann and Magda. How businesses can profit from raising compensation at the bottom . 12 October 2010. 2014 . Costco US. "Costcos Annual Report 2012." Costcos Annual Report 2012 (2012): 1-37. Read More