CASE ANALYSIS ON

PRESENTED BY:
Name Students ID

Sumaya Bintee Faraque 16374003

Md. Iftikharul Huq 15274002

Murad Hossain 16374009
Pankaj Dey
Salahuddin Bulbul 14274005
Rajdeep P. Chowdhury 16174013
Table of Content:
Part A: General Overview Part B: Business Analysis Part C: Conclusion

1. At a Glance 1. Macro Environment 1. SWOT Analysis

2. Vision & Mission 2. Porter 5 Forces Model 2. Recommendations
3. Business Model 3. Market Position 3. Implementation
4. Business Strategy 4. Financial Analysis
5. Costco Business Projection
6. Comparative Analysis
7. Winning Strategy
8. VRIN Test
9. Value Chain
10. Critical Success Factor
 Part A:
General Overview
 COSTCO AT A GLANCE
Costco membership warehouse first operation began in 1983 in USA at Seattle.
In December 1985, Costco became a public company.
October 1993, Costco merged with Price Club.
Year 1997 PriceCostco changed its name to Costco Companies, Ins.
After 2 years at the year 1999 company reincorporated from Delaware to Washington and PriceCostco
changed its name to Costco Wholesale Corporation.
After 9 years in 2008 Costco invest in real estate operations and Costco owned the land and buildings
for about 80% of its stores.

Products Meats, seafood, fruits, vegetables, paper products, cereals, coffee, dairy
products, cheeses, frozen foods, televisions, iPods, digital cameras, flowers,
wines, caskets, baby strollers, toys and games, musical instruments, ceiling
fans, vacuum cleaners, books, apparel, cleaning supplies, DVDs, light bulbs,
batteries, cookware, electric toothbrushes, vitamins, washers and dryers
around 4000+ items.

Warehouse in 512 warehouse in operation till 2008

Operations

Country USA, Canada, Puerto Rico, UK, Taiwan, Japan, Korea and Mexico
Vision:
Our business is to give the customer the best value we can.
-Jim Sinegal, cofounder and CEO of Costco

We're going to be a company thats on a first-name basis with

everyone.

Mission:
To continually provide our members with quality goods and
services at the lower price.
 Costco Business Model
Volume Purchasing
Low Price
+ Efficient Distribution
+ Limited Selection of Quality Merchandise
+ Reduced Handling of Merchandise
+ Wide Range of Merchandise Categories
+ No-frills, Self-service Warehouse
Rapid Inventory Turnover
Operating Efficiencies

Rapid Inventory Turnover

+ Operation Efficiencies
Profit at a Very Low Gross Margin
 Costcos Strategy
Category of
Kinds of Strategy
Strategy

Low Pricing
Limited Selection
Merchandise Selection
Treasure-Hunt Merchandising
Main
Open More new Warehouse
Growth Strategy Ever Larger & Fiercely Loyal Membership
Employ Well-executed Merchandising Techniques
Marketing & Advertising
Secondary
E-commerce Strategy
 Part B:
Business Analysis
 Macro Environment
Factors
General Economy The estimated business was about US $120 Billion for wholesale club
and warehouse segments in USA in 2008
Costco attract most affluent customers
Average income of individual about $75,000
Over 30 percent having incomes of $100,000 or more annually
Costco had close to 53% share of warehouse club sales in United
States and Canada.
Sams Club had close to 37% share and BJs Wholesale and other
small warehouse had 10% share of warehouse sales

Technology E-commerce Business Sites: Running two websites www.costco.com

(USA) and www.costco (Canada)
Payment Methods/option: Debit Cards, American Express, Private
Level Costco Credit Card
 Macro Environment Cont . . .
Factors
Social Compensation plan for the employees
Good Salary Package & Bonuses
Health and Dental care
Job Security & healthy work Environment
Life Insurance and Accidental death benefits
Day Care Facilities for familie
Demographics Region-wise: Urban customers
Income Group: Affluent Customers
Gold Star memberships for individuals
Business membership for small business owners
 Macro Environment Cont . . .
Factors
Legislation and A. Obey the law- Conducting business in total compliance with the
regulations laws of every community where Costco do business.
B. Take care of our members- Providing top-quality products and
best customer service in the retail industry.
C. Take care of our emplyees- Costco promise to provide
Competitive wages, a safe and healthy work environment,
challenging and fun work Career opportunities. An atmosphere
free from harassment or discrimination
D. Respect Our Suppliers Treat suppliers as business partner
E. Reward Our shareholders- Ultimate goals
 Porter 5 Forces
Forces
Buyers Strong Bargaining power
Low switching costs
High availability of substitutes
Availability of information at buyer end from different retail websites.
Selling commodities are undifferentiated
Buyers are price sensitive
Suppliers Weak bargaining power
Direct buying relationships with many producers of national brand
Particular Commodities are readily available from many suppliers
Low switching cost to alternative suppliers
Large number of suppliers are available
No manufacturer is supplied a significant percentage of the merchandise
that Costco stocked
 Porter 5 Forces Cont . . .
Forces
Rival firms (Rivalry is Buyers switching cost is low
stronger) Commodities are weakly differentiated
Multiple numbers of equally capable competitors present
Numerous competitors offers are not limited
Buyer demand is growing slowly as time passes

Substitute products Well established substitutes are readily available in the market
(Competitive like Sams Club / BJs Wholesale
Pressure High) Substitutes offers are good
More facilities like Sams club offers collegiate membership
More variety of products or services available BJs sells 7300
items compare to Costco 4000 items
Low switching cost for customer
 Porter 5 Forces Cont . . .
Forces
New entrants Due to low switching cost new retailers can attract customers
(Moderate Entry Entry barriers are high because of high economies of scale and to
threat) compete directly against giant like COSTCO
Expanding current market vigorously where opportunities are
less for new entrants.
 Market Positions of Rivals
Close Competitors Distance Competitor
Sams Club BJs Wholesale

Higher
Operating Margin

Sams
Club

BJs Costco

Lower

Few Many
Number of Locations
Note: Circles are drawn roughly proportional to the sizes of the club chains based on revenue
 Costcos Financial Analysis
Performance
Ratio\Fiscal Year 2008 2007 2006 2005 2000 Remark
Parameter

Gross Profit
2.72% 2.50% 2.70% 2.79% 3.23% S/B Upward Not Stable
Margin
Profitability

Net Profit
1.77% 2.50% 2.70% 2.78% 3.22% S/B Upward Not Stable
Margin
Avg 12-15
Return on Average; Not
13.96% 12.56% 12.06% 11.97% 14.88% and S/B
Equity Stable
Upward

S/B Higher
Liquidity

Current 1.07:1 1.09:1 1.05:1 1.22:1 1.02:1 than 1; 2 in Good

Better

Quick 49.84% 51.79% 46.95% 62.46% 28.79% Unstable

 Financial Analysis Graphical View
Profitability Ratio
3.50% 3.50% 16.00%

3.00% 3.00% 14.00%

12.00%
2.50% 2.50%
2008 2008 2008
10.00%
2.00% 2007 2.00% 2007 2007
8.00%
1.50% 2006 1.50% 2006 2006
6.00%
1.00% 2005 1.00% 2005 2005
4.00%
0.50% 2000 0.50% 2000 2.00% 2000

0.00% 0.00% 0.00%

Gross Profit Margin Net Profit Margin Return on Equity

Liquidity Ratio
1.4 70.00%

1.2 60.00%

1 Lowest Margin 50.00%

2008
2008
0.8 40.00% 2007
2007
0.6 30.00% 2006
2006
0.4 20.00% 2005
2005
0.2 10.00% 2000
2000
0 0.00%

Current Ratio Quick Ratio

 Costcos Financial Analysis Cont . . .
Performance
Ratio\Fiscal Year 2008 2007 2006 2005 2000 Remark
Parameter
Fraction s/b
Debt-to-Asset 24.73% 23.19% 3.11% 9.29% 23.05% Unstable
Low
Leverage

Long-term S/b Below Satisfactory but

0.19 0.20 0.02 0.07 0.16
debt-to-Capital 0.25 Unstable

Satisfactory but
Debt-to Equity 0.25:1 0.25:1 0.03:1 0.09:1 0.19:1 Usually less 1
Unstable

Days of 29.04 31.73 31.89 32.70 Fewer days is Performance

Activity

-
Inventory Days Days Days Days better Progressive
Inventory 12.57 11.50 11.44 11.16 Higher is Performance
-
Turnover T/Y T/Y T/Y T/Y better Progressive
 Financial Analysis Graphical View
Leverage Ratio
0.25 1.2

0.20 1
Accepatble Range
2008 0.8
0.15 2008
2007
0.6 2007
0.10 Mergin
0.4 2006
2006
0.05 2005
2005 0.2
2000
0.00 0
long Term Debt to Capital Ratio Debt-to-Equity Ratio

Activity Ratio
33.00 13.00

32.00 12.50

31.00 12.00
2008 2008
30.00 2007 11.50 2007

29.00 2006 11.00 2006

2005 2005
28.00 10.50

27.00 10.00

Days of Inventory Inventory Turnover

 Costco Growth Chart
80000 1400 600
70000 1200 500
60000
1000
50000 2008 ($ 70977) 2008 ($ 1283) 400 2008 (512)
800
40000 2007 ($ 63088) 2007 ($ 1083) 300 2007 (488)
600
30000 2006 ($ 58963) 2006 ($ 1103) 2006 (458)
200
20000 2005 ($ 51862) 400 2005 ($ 1063) 2005 (433)
10000 2000 ($ 31621) 200 100
2000 ($ 631) 2000 (313)
0 0 0
Net Sales ($ in Net Income ($ in Warehouses in
Millions) Millions) Operation
30000

2008 2007 2006 2005 2000 25000

20000 2008 (25800)

Net Sales
70977 63088 58963 51862 31621 2007 (24000)
(Millions) 15000
2006 (22552)
Net Income 10000
1283 1083 1103 1063 631 2005 (21283)
(Millions) 2000 (17095)
5000

Warehouse 512 488 458 433 313 0

Cardholders
Cardholder 25800 24000 22552 21283 17095
 Costcos Overall Projection
Fiscal Year 2008 2007 2006 2005
Total Revenue ($ in millions) $ 72,483 $ 64,400 $ 60,151 $ 52,952
Revenue Projection 11.2% 6.6% 12.0% -
Net Income ($ in millions) $ 1,283 $ 1,083 $ 1,103 $ 1,063
Net Income Projection 15.59% -1.85% 3.63% -
Number of Warehouse 512 488 458 433
Warehouse Projection 4.7% 6.1% 5.5% -
 Comparative Analysis
Wholesale club industry in USA have three major players are: (1) Costco, (2)
Sams Club, (3) BJ Wholesale. Below we are showing these three players
financial comparison of fiscal year 2007:

Fiscal Year 2007 Costco Vs Competitors

Net
Operating
Revenue Income Warehouses Number of
Income
(Millions in (Millions in in Member
Company (Millions in
$) $) Operation (Millions)
$)

Costco $ 64,600 $ 1,083 $ 1,609 488 50.4

Sam's Club $ 44,357 N/A $ 1,618 591 47.0

BJ's Wholesale $ 9,905 $ 123 $ 195 177 8.8

 Costco Winning Strategy
From the liquidity ratio analysis the financial
strength is good.
Internal
From the profitability ratio analysis profit margin
Strategic Fit Test are in average though fluctuate continually.

Between 2007 & 08 number of warehouse,

External
membership etc. are grown trend.

Significantly better with others, in these parameters:

Costcos total number of Warehouse, number of
Competitive Membership, Customers service, Management
-
Advantage Test efficiency, Goodwill & Market share etc.

Costcos Overall performance is better with the

Performance Test -
cooperation of rivals.
 Costcos VRIN
Owned land and buildings (80%)
Tangible
High market share (53%)
Valuable
Resource Goodwill
Intangible Skill human resources
Good corporate culture

Rare Source - Strong customers base

Hard to Copy
- Maintaining staffs turnover
/ Inimitable

Non-
- Home grown management attitude
substitute
 Costcos Value Chain
Elements Value Chain
Supply Chain Management Treasure Hunt
Operations Provide package product
Primary
Distribution Smooth delivery system
Activities and
Costs Sales & Marketing Word of mouth

Service Skill and dedicated staffs

Profit share for CSR (Health
Profit Margin
care, environment)
 Success Factors
Word of mouth advertising
After establish a warehouse most of members are
came from word of mouth advertisement.
Cost Advantage (Low Price)
 Part C:
Conclusion
 SWOT Analysis
Strength
1. Very attractive low prices
2. Loyal and affluent customer
3. Internal (home grown) top
management team in majority
4. Its Kirkland brand of private label
brand is successful and offers high
profit margins
5. Excellent merchandise
6. Exceptional employees
7. 54 millions members
8. Costcos membership qty. is high
rather then Sams warehouse qty
more then Costco.
9. Costcos business growth looks good.
Internal
Weakness
1. Maintain high wages
2. Maintain low price margins
3. Jim Sinegal (CEO) in 71 years old
4. E-business activities
5. Small marketing budget compared to discount
6. Limited selection of goods and services
7. Primary focus on business customers rather
than individual customers
8. As per financial analysis Costcos financial
situation is not stable
9. As per comparative analysis Sams Operating
efficiency is batter then Costco.
 SWOT Analysis Cont . . .
External
Opportunities
1. E-commerce activities
2. Rapid growth in membership
3. Increasing brand awareness
4. Positive image in terms of employees
pay and social responsibility
5. Business expand to local and foreign
market.
Threats
1. Aggressive price competition by rivals
2. Political complications in foreign
market
3. Not well diversified in terms of
geography
4. Highly dependant on USA and
Canadian market
5. High competition from Sams Club and
BJ
6. Costco cannot attract people who are
below poverty line.
 Recommendations and
Implementations
Diversification
Expand
Increase CSR
E-business Globalize Customers
Activity
Segment
Make one website Expand the Focus on individual Engage mass people
with multiple footprint in Asia, customer along with with the business by
language. Europe and others business customer employing
economic region community people
Adding electronic Take first mover Targeted to rural and
and social media advantage marginal people.
advertisement