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Costco Wholesale Corporation - Case Study Example

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Costco is a leading wholesale retailer in the world with revenue about $64.4 billion. Costco follows a low price sales model. This model differs from other retailers because the company proposes high volumes of its products for Costco members only. "Costco was also the world's largest seller of fine wines ($385 million out of total 2006 fine wine sales of $805 million).4 tires, housewares, luggage, appliances, clothing, and detergent-were designed to be of equal or better quality than national brands" (Thompson p 2008, p…
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Costco Wholesale Corporation
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Download file to see previous pages Though less readily measurable, it is apparently accompanied by a shrinking of activities for the few remaining general merchandising wholesalers and a loss of sales for small stores carrying women's and children's apparel, particularly in low and medium-quality lines. Costco is a closed-door store which allows only "members" access to the store through membership eligibility as defined by rather broad classifications of government employees, teachers, union members, or employees of government contractors (see Appendix 4). The chain carries a wide range of soft goods and apparel, but also gives major attention to furniture, appliances, food, and automotive supplies. Several of the closed door operations have recently opened their doors to the general public. "Examples of Costco's incredible annual sales volumes included 96,000 carats of diamonds (2006), 1.5 million televisions, $300 million worth of digital cameras, 28 million rotisserie chickens (over 500,000 weekly), 40 percent of the Tuscan olive oil bought in the United States, $16 million worth of pumpkin pies during the fall holiday season, $3 billion worth of gasoline, 21 million prescriptions, and 52 million $1.50 hot dog/soda pop combinations" (Thompson p. 2008, p. C5). Low operating margins achieved through volume sales and limited service expenditures for clerks, delivery, credit, and so on have allowed prices which average about 15% below those of the department stores and specialty shops with which discount stores compete in the sale of soft goods. Full-size food supermarkets are being established within many of the new large discount stores. Because of consumers' long experience in comparing food values between stores and because of the frequency of food store visits by the average family, these food departments are attractive to the soft-goods stores as traffic builders, and are frequently operated with planned narrow margins (or even planned losses) to maximize their drawing power (Costco Home Page 2008).
Chief Elements of the Costco's strategy
The uniqueness of Costco strategy is that it proposes advantages and benefits to its members only, except gasoline and beverage products. The closed-door stores depend primarily on word of mouth and on mail promotion to their members to publicize the attractive values offered. Costco does not make extensive use of advertising media to give publicity to the low prices and special values which they offer. Major retail innovations involve an "invention" of new means of performing the retailing function. They are dependent on concomitant developments in products, in physical handling technology, and in organization at the wholesale supply level; but, most important of all, they are dependent on changes in the income, location, and style of life of consumers (Drejer 2002).
In contrast to other retailers, Costco proposes wide product rage: "Whereas typical supermarkets stocked about 40,000 items and a Wal-Mart Supercenter or a SuperTarget might have as many as 150,000 items for shoppers to choose from, Costco's merchandising strategy was to ...Download file to see next pagesRead More
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