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Strategic Plan,[object Object],Team 1,[object Object]
About Costco,[object Object],End of 2008 ,[object Object],$71 Billion in Sales,[object Object],550 stores world-wide,[object Object],54 million members,[object Object],Avg yearly income $70K,[object Object],Quality merchandise,[object Object],Low price,[object Object],Rapid inventory turnover,[object Object]
Business Model,[object Object],Plus membership fees,[object Object]
Huge savings for members,[object Object]
“I want to retire here. ,[object Object],I love it here.”,[object Object]
Strategic Vision,[object Object]
Vision,[object Object],“Our business is to give the customer the best value we can.” – Jim Sinegal, Founder of Costco,[object Object],“We're going to be a company that’s on a first-name basis with everyone.”,[object Object]
Strategic Vision,[object Object],Give customers the best value, at the best price,[object Object],Treat people right, and with respect,[object Object],Act ethically,[object Object],Most importantly never lose sight of what the purpose of your business is,[object Object],Best value, best price,[object Object]
Short- and long-term,[object Object],Strategic Objectives,[object Object]
Employment Objectives,[object Object],Hire great people,[object Object],Treat them well,[object Object],Give them good jobs,[object Object],Do right by them,[object Object]
Management Objectives,[object Object],Always promote from within,[object Object],Training happens constantly ,[object Object],Grow our own talent ,[object Object],Model what you want from your employees,[object Object]
Business Objectives,[object Object],Don’t try to be too much to too many,[object Object],Know on what level you compete,[object Object],Know your customers,[object Object],why they do business with you,[object Object],Stay focused on your core business,[object Object]
Growth Objectives,[object Object],Run the business for long-term sustainability,[object Object],Open new stores,[object Object],50-60 new locations per year,[object Object],Keep Internet sales growing,[object Object]
Marketing Objectives,[object Object],Word of mouth only,[object Object],No PR department, ever?,[object Object]
Ethics Objectives,[object Object],Obey the law,[object Object],Treat customers right,[object Object],Treat employees right,[object Object],Treat suppliers right,[object Object]
Biggest Challenge,[object Object],Stay focused on what we do,[object Object],Our business model,[object Object],Focus on our core business,[object Object]
Retail industry,[object Object],The External Environment,[object Object]
External Environment,[object Object],General economic condition,[object Object],recession recovery,[object Object],Stronger dollar = weaker foreign sales,[object Object],Domestic market is maturing,[object Object],Saturated,[object Object],At least one store in each major metropolitan area,[object Object],Often going head-to-head,[object Object]
Market size and growth rate,[object Object],5-yr Growth: ,[object Object],5.73%,[object Object],5-yr Growth: ,[object Object],13.28%,[object Object]
Sales Breakdown,[object Object],Number of Rivals,[object Object],Over 1,200 warehouse clubs in North America,[object Object],only 473 Costco’s,[object Object],Other retailers and wholesalers,[object Object],groceries,[object Object],general merchandise chains ,[object Object],Wal-Mart, Target, and Kohl’s ,[object Object],specialty chains,[object Object],Barnes & Noble, Lowe’s, Best Buy, Staples,[object Object],gas stations,[object Object],e-commerce,[object Object]
Vertical Integration,[object Object],Partially vertically integrated,[object Object],Cross-dock distribution ,[object Object],Backward integration,[object Object],Kirkland Signature brand,[object Object],Relationships with ,[object Object],Manufacturers,[object Object],Suppliers,[object Object]
Economies of scale,[object Object],Gigantic sized orders,[object Object],Bulk packaging,[object Object],Largest warehouse stores,[object Object],Membership base (54 mil),[object Object]
Competitive Forces,[object Object],Substitutes,[object Object],Strong threat,[object Object],[object Object]
Price not significantly higher
Comparable product features
More variety of features
Low switching costSuppliers,[object Object],Weak bargaining power,[object Object],[object Object]
Low switching cost
Many substitutes exist
Large quantities are neededCompeting Sellers,[object Object],Fierce competition,[object Object],[object Object]
Quality is slightly better
Buyer demand is growing
Buyer’s switching cost is lowBuyers,[object Object],Weak bargaining power,[object Object],[object Object]
Large membership base
Costco has the best valuePotential New Entrants,[object Object],Low threat,[object Object],[object Object]
High barriers to entry
Expanding market
Attractive profits,[object Object]
Driving Forces,[object Object],Legislation,[object Object],proposed tax on big-box stores ,[object Object],Recession ,[object Object],Technology ,[object Object],green technology is a concern,[object Object]
Market Positions of Rivals,[object Object],Pricesmart Inc.,[object Object],P,[object Object],Higher,[object Object],Sam’sClub,[object Object],Costco,[object Object],Operating Margin,[object Object],BJ’s,[object Object],Lower,[object Object],Few,[object Object],Many,[object Object],Number of Locations,[object Object],Note: Circles are drawn roughly proportional to the sizes of the club chains based on revenue,[object Object]
Rivals’ Next Strategic Moves?,[object Object],More stores in foreign markets,[object Object],facing market saturation in U.S.,[object Object],cannibalization,[object Object],Copy Costco,[object Object],Sam’s Club opens first Business Centers,[object Object],July 22, 2008,[object Object]
Key Success Factors,[object Object],Internet sales,[object Object],Vast network of retail locations,[object Object],cross-docking ,[object Object],No-frills warehouse,[object Object],Ongoing effort to cut costs ,[object Object],Only stock bargains,[object Object],Treasure-hunt merchandise,[object Object],No-hassle return policy,[object Object],Word of mouth advertising,[object Object]
Industry Outlook,[object Object],http://finance.yahoo.com/q/ae?s=COST,[object Object]
Costco Strategic Plan
World-wide retail,[object Object],The Competitive Environment,[object Object]
Industries Costco Competes In,[object Object],Retail ,[object Object],Consumer Services,[object Object],Financial Services,[object Object],Insurance,[object Object]
Competitive Analysis,[object Object],Costco's main competitors,[object Object],Sam's Club,[object Object],BJ’s Wholesale Club,[object Object],Other retailers,[object Object]
SWOT – Strengths,[object Object],Low price,[object Object],Strong brand,[object Object],Excellent merchandise,[object Object],Exceptional employees,[object Object],54 million members,[object Object],Economies of scale,[object Object],Efficiency,[object Object]
SWOT – Weaknesses,[object Object],James Sinegal is 79,[object Object],Maintain high wages,[object Object],42% higher than Sam's Club ,[object Object],Maintain low margins,[object Object]
SWOT – Opportunities,[object Object],Recession,[object Object],Easier to find bargain luxury-items,[object Object],Increased popularity of Costco,[object Object],Expanding foreign markets,[object Object],Europe,[object Object],China,[object Object],India,[object Object]
SWOT – Threats,[object Object],Fierce competition,[object Object],Other retailers,[object Object],Cannibalization,[object Object],Political problems in other countries,[object Object]
Conclusions from SWOT,[object Object],Overall, Costco is doing great!,[object Object]
Front-burner Issue,[object Object],Who will replace the CEO?,[object Object],Gender discrimination lawsuit,[object Object],Improper accounting,[object Object],Ethics and compliance program,[object Object]
Identifying Current Strategy,[object Object]
Strategy Identification Overview,[object Object],Generic Competitive Strategy,[object Object],Complementary Strategic Options,[object Object],Functional Area Strategy,[object Object],Timing,[object Object]
Generic Competitive Strategy,[object Object],Best-Cost Provider,[object Object],Top-quality merchandise,[object Object],Lowest price,[object Object],Treasure-hunt items,[object Object],Kirkland Signature,[object Object],Top-quality in-house brand,[object Object]
Complementary Strategic Options,[object Object],Strategic alliances,[object Object],Bulk packages for Costco,[object Object],Kirkland brand,[object Object],Website strategy,[object Object],Brick-and-click,[object Object]
Functional Area Strategies,[object Object],Distribution,[object Object],Cross-dock,[object Object],Marketing,[object Object],No marketing,[object Object],HR,[object Object],Promote from within,[object Object],Finance,[object Object],Own 80% of real-estate and buildings,[object Object]
Timing – First Mover,[object Object],Costco Business Centers,[object Object],Greening of Costco warehouses,[object Object],Energy conservation,[object Object],No-frills,[object Object],Energy conservation,[object Object],Finding new ways to repackage ,[object Object],Products,[object Object],Services,[object Object]
Alliances and Partnerships,[object Object],Partnerships,[object Object],Mexico 31 warehouses a ,[object Object],50%-owned joint venture,[object Object],access to ,[object Object],Foreign market,[object Object],Key officials,[object Object],Taiwan 5 locations,[object Object],through a 55%-owned subsidiary,[object Object],Alliances,[object Object],Kirkland Signature is a strategic alliance with,[object Object],Suppliers,[object Object],Manufactures,[object Object],Martha Stewart,[object Object],Bumble Bee,[object Object],Service Providers,[object Object],Payroll Services,[object Object],Prepaid Express Shipping,[object Object],Web Sites,[object Object],Etc.,[object Object]
Outsourcing,[object Object],IT Support,[object Object],US Technology Resources LLC,[object Object],75 out 100 jobs are in India ,[object Object],Shipping from Costco.com,[object Object],UPS,[object Object],FedEx,[object Object]
Competing in Foreign Markets,[object Object],Think global, act local,[object Object],Same basic strategy,[object Object],Low price,[object Object],Tailor product offerings by,[object Object],Cultural difference,[object Object],Local managers decide,[object Object],More foreign markets,[object Object],Europe,[object Object],China,[object Object],India,[object Object]
Specific Industry and Company Situations,[object Object],Address these macro situations,[object Object],Competing in Maturing Industries,[object Object],Competing in Fragmented Industries,[object Object],Strategy for Industry Leaders,[object Object]
Related Diversification,[object Object],Costco Wholesale,[object Object],Warehouse Clubs and Superstores,[object Object],Costco Business Centers,[object Object],Cross-business strategic fit,[object Object],1 + 1 = 3,[object Object]
Unrelated Diversification,[object Object],Consumer Services,[object Object],Travel,[object Object],Optical,[object Object],Automotive,[object Object],Financial Services,[object Object],401(K),[object Object],Loans,[object Object],Insurance,[object Object],Pharmacy,[object Object],Recycle electronics,[object Object]
Unrelated Diversification,[object Object]
Ethics and Social Responsibility,[object Object]
Ethical?,[object Object],Is diversion buying ethical?,[object Object],Diversion Buying,[object Object],Crocs only sell at full price to protect its brand name and price structure,[object Object],Crocs did not sell to Costco, nor has it authorized any of its customers to sell to Costco.,[object Object],Improper accounting practices,[object Object],Ethics and compliance program,[object Object],One of the conditions for dropping case,[object Object]
Deceptive Pricing?,[object Object],April 2009, Costco announces ,[object Object],Kirkland tuna can size increases ,[object Object],6oz to 7oz, yeah!,[object Object],Failed to mention the price increase,[object Object],Price per ounce increased!!!,[object Object],How can all the prices end in .99,[object Object],If the margin is capped at 14%,[object Object],Is $10.25 just rounded up?,[object Object]
Recent Lawsuits,[object Object],April 2008,[object Object],National class action gender bias suit,[object Object],December 3, 2008,[object Object],Costco Employee Awarded $420K,[object Object],March 9, 2009,[object Object],Gay Employee Sues Costco for Retaliation,[object Object],May 1, 2009,[object Object],Costco Settles Membership Class Action,[object Object]
Costco’s Code of Ethics,[object Object],Obey the law,[object Object],Take care of our members,[object Object],Take care of our employees,[object Object],Respect our suppliers,[object Object],Reward our shareholders,[object Object],The ultimate goal,[object Object],+,[object Object],Code of Ethics (full version),[object Object]
Corporate Social Responsibility,[object Object],More than a figure of speech ,[object Object],Donating money and time is good for,[object Object],memberships,[object Object],patronage,[object Object]
community service activities, charitable causes, better quality of life,[object Object],Last 10 years,[object Object],more than $140 million,[object Object],Actively involved in community,[object Object],reading programs in schools,[object Object],scholarship programs for the disadvantaged,[object Object],Contributing and raising money,[object Object],children’s hospitals ,[object Object]
Costco Strategic Plan
Chat,[object Object],Sell,[object Object]
Protect the Environment,[object Object],Green packaging,[object Object],Renewable paper and cardboard,[object Object],Not plastic clamshells,[object Object],Green cleaning products,[object Object]
Energy Management and Conservation,[object Object],Skylights,[object Object],Timed lighting,[object Object],More efficient lighting,[object Object],High-efficiency heat and AC,[object Object],Hybrid delivery trucks,[object Object],Solar panels,[object Object],Pay employees to ,[object Object],Carpool,[object Object],Ride bus,[object Object]
Solar Power,[object Object],2006 Costco's first 580 kW prototype system a success,[object Object],Lancaster, CA ,[object Object],Four more systems added,[object Object],600 kW (DC) per location,[object Object],Largest commercial PV systems in the U.S.,[object Object],17 PV systems in 2008,[object Object]
Solar Innovation at Costco,[object Object],Hazlet, New Jersey,[object Object],500kW system,[object Object],new Solyndra panels ,[object Object],cylindrical modules ,[object Object],Largest Solyndra system,[object Object]
Excessive Packaging,[object Object],environment-unfriendly packaging of small items ,[object Object],huge plastic blister packs ,[object Object],can’t always be recycled,[object Object],plastic and cardboard blister packs,[object Object],terribly excessive packaging ,[object Object],a crime against the planet,[object Object]
Employee Well-being ,[object Object],Best pay,[object Object],Best benefits,[object Object],spouses,[object Object],children,[object Object],domestic partners,[object Object],Pays a larger percentage of premiums,[object Object],withheld pre-tax,[object Object]
Costco Strategic Plan
Workforce Diversity,[object Object],Costco is diverse with respect to,[object Object],Gender,[object Object],Race,[object Object],National origin,[object Object],Disabled, etc.,[object Object],International companies benefit from having a diverse workforce,[object Object],Better communication,[object Object]
Strategy Execution,[object Object]
Building an Organization Capable of Good Strategy Execution,[object Object],Staffing the organization,[object Object],Recruit the best,[object Object],All managers are hired internally,[object Object],Continuous training,[object Object],High pay and great benefits,[object Object],Fun work environment,[object Object]
Building an Organization Capable of Good Strategy Execution,[object Object],Buildingcore competencies and competitive capabilities,[object Object],Finding and negotiating bargains,[object Object],On quality merchandise,[object Object],Building relationships with ,[object Object],Manufacturers,[object Object],Suppliers ,[object Object],Ingenuity ,[object Object],Cost cutting,[object Object],Conservation ,[object Object]
Building an Organization Capable of Good Strategy Execution,[object Object],Organizing the work effort,[object Object],Decentralized decision making,[object Object],Peer pressure,[object Object],Honesty,[object Object],Good Health,[object Object]
Enterprise Facility Information Management (EFIM) system,[object Object],Each Costco is connected to corporate HQ,[object Object],EFIM provides ,[object Object],real-time information,[object Object],manage control systems,[object Object],Inventory management system,[object Object]
EFIM,[object Object],Reduce operating costs related to ,[object Object],energy consumption,[object Object],maintenance,[object Object],contracted services,[object Object]
Rewards and Incentives,[object Object],Non-monetary rewards,[object Object],Making the team,[object Object],Employee contests,[object Object],Fun and exciting workplace,[object Object],Monetary rewards,[object Object],The best pay,[object Object],Best benefits,[object Object],Free membership,[object Object]
Culture and Leadership,[object Object],High-Performance Culture,[object Object],Fun and exciting,[object Object],Continuous training,[object Object],Teamwork,[object Object],Diversity,[object Object],Customer first,[object Object]
Corporate Culture,[object Object],Honesty and frugality,[object Object],“Value and low price”,[object Object],Lead by example,[object Object],Hire from within,[object Object],Culture of inclusion,[object Object],generous pay,[object Object],first name basis,[object Object],fun and energetic,[object Object]
Evaluating Strategy,[object Object]
Achieving Strategic Objectives,[object Object]
Achieving Financial Objectives,[object Object]
Acquiring New Customers,[object Object],7.3% increase 1999 & Before,[object Object],5.1% increase overall,[object Object]
e-commerce,[object Object],Build on success ,[object Object],Costco.com,[object Object],Costco.ca,[object Object],No online shopping,[object Object],Mexico,[object Object],UK,[object Object],Taiwan,[object Object],Japan,[object Object],Korea,[object Object]
Quarterly Profits Fell 29%,[object Object],Foreign Sales,[object Object],Litigation,[object Object],Slump in luxury items,[object Object],Increased health care costs,[object Object]
Geographic Coverage,[object Object]
International Market,[object Object],Greater international expansion,[object Object],International sales are high,[object Object],21.5%,[object Object],U.S. Sales are down,[object Object],78.5%,[object Object]
Key Ratios,[object Object]
Stock Performance,[object Object],Last 5 years,[object Object],Compared to Nasdaq (yellow),[object Object]
Image and Reputation,[object Object]
Moving forward,[object Object],Recommendations,[object Object]

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Costco Strategic Plan

Hinweis der Redaktion

  1. Costco CEO Jim Sinegal invented the wholesale club concept in 1983, and a new industry was born. Wholesale clubs were a revolution in retail. They quickly spread throughout the United States, Canada, and Mexico and are quickly expanding into other countries. By the end of 2008, there were 550 stores in 40 states and 7 countries, with 54 million members. By offering quality merchandise at a low price, they attract mostly affluent shoppers.
  2. Business Model: Profit at very low margins is the name of the game. Low prices + Limited selection (around 4000 items) + Wide range of merchandise categories (tires to baby wipes) creates the rapid inventory turnover. Volume purchasing + efficient distribution + reduced handling of merchandise + no-frills warehouses = Operating efficiencies.
  3. Frequent buys at Costco: Costco price for the list is $171. Grocery Store price is $538, a savings of $367.
  4. Costco has the highest wages and the best benefits of most retailers. Employee love working at Costco. In many ways, Costco is the anti-Wal-Mart. Employee loyalty is very important part of their strategy.
  5. Costco’s strategic vision…
  6. From the beginning Jim wanted Costco to be on a first-name basis with everyone. Costco is about giving customers the best value possible.
  7. The best value at the best price sums up the vision. Smaller but powerful parts are treat people right, act ethically (rememberthis for the ethics part) and the vigilance to never forget what makes your business successful.
  8. Strategic objectives…
  9. Employment Objectives: First, hire great people. Jim said, “If you do right by the people working for you, they will build you a successful business.”
  10. Management objectives: Always promote from within.Training happens at all times, not just in the classroom. Model the behavior you want from employees.
  11. Business Objectives: Don’t try to be too much to too many, you’ll dilute your business model and lose focus. Know on what level you compete – For Costco they compete on quality and price. They want the highest quality merchandise for the best value. Probably why they attract the more affluent shoppers.
  12. Growth Objectives: Run the business for long term sustainability. Sinegalwants Costco to be here long after he’s gone. Open 50-60 new locations per year. Keep Internet sales growing.
  13. Marketing Objectives: Jim believes that word of mouth is the most powerful marketing tool there is. It sounds better when somebody else talks about you than when you talk about yourself. Costco still has no PR department and probably never will.
  14. Ethics Objectives: Obey the law, Treat customers right, Treat employees right, Treat suppliers right
  15. Our biggest challenge is to stay focused on what we do. This transcends any economic challenge we may face. ()
  16. Strategy
  17. External Environment: The warehouse club Industry is a small but profitable part of the retail industry. In 2008 as the recession took hold, warehouse clubs saw an increase in membership and in sales of basic household items. As the dollar recovers, foreign sales are weakening. In the United States, there is at lease one store in every major metropolitan area. Many also have a Sam’s Club or a BJ’s wholesale club.
  18. Market size and growth rate: The warehouse club Industry is a small but profitable part of the retail industry. It is still growing and the outlook is good because even though the domestic market is saturated, expansion in foreign markets is just beginning.
  19. The “Wholesale clubs” industry is highly competitive, on factors such as price, merchandise quality and selection, warehouse location and member service. Out of 1200 clubs in North America, 473 are Costco’s. Other wholesale clubs include Sam’s Club and BJ’s Wholesale Club. Costco competes in several types of retail, including specialty, gasoline, and e-commerce
  20. Costco is partially vertically integrated. The Kirkland brand partners with manufacturers and suppliers to provide top quality at a low price. The Kirkland brand is on hundreds of products from meat to caskets. Sam’s Club and BJ’s also have their brands but they are lower in quality.
  21. They order massive amounts from manufacturers. Bulk packages sell larger quantities to consumers. The huge warehouse clubs eliminate the need for actual warehouses. At the same time, they reduce the need for handling. This greatly enhances distribution efficiency. Their large-scale membership base makes them strong.
  22. The Warehouse Clubs and Superstores industry (which was invented by Costco) is very competitivelyunattractive unless you are ideally suited to compete in it. There are substitutes on every corner, and switching costs are very low and variety in size, color and options is much greater at other stores.
  23. Driving Forces: e-commerce is still relatively new for Costco and only accounts for 3% of sales. While the domestic market is increasingly saturated, the international arena is wide open. Rising costs are a big concern for an industry that is always striving to cut costs.
  24. Driving forces: Costco faces a tax proposal in Montana. The recession is affecting everyone’s lifestyle. Consumers are concerned about the environment and they want to shop at stores that are environmentally friendly.
  25. The size of circle is based on revenue. Costco has the highest revenue. A lower operating margin equals a lower markup on merchandise. A lower operating margin is consistent with charging lower prices and running a leaner (no-frills) operation. Costco has the lowest operating margin and Sam’s club has the most locations.
  26. The Competition will open more stores in foreign markets and continue to copy Costco. They will probably be starting recycling programs and installing solar systems on their roofs.
  27. Key Success Factors: Internet sales are increasing. Vast network of retail locations with efficient distribution system, No Frills warehouse, Cost cutting efforts, only stock bargains, Treasure hunt merchandise, No-hassle return policy, word of mouth advertizing.
  28. The industry outlook is great!
  29. This revenue forecast for Costco looks great.
  30. The competitive environment
  31. These are the general industry categories that Costco competes in. Now they are into recycling used electronics too.
  32. In 2008, Costco has a hundred less stores than Sam’s Club, but nearly double the revenue. Costco outsells nearly all stores in dollars per square foot.
  33. Strengths: low price, strong brand name, excellent merchandise, exceptional employees, huge membership base, economies of scale, efficient distribution and operation.
  34. Weaknesses: CEO will soon be gone, burden of high wages and benefits, plus low margins.
  35. Opportunities: Costco has become a clearance for other retailers who can’t sell their goods (like jewelry), so more bargains for Costco buyers. More people joined to save money. There are tremendous opportunities in expanding foreign markets, such as China and India.
  36. Threats: Fierce competition, price competition from other retailers, cannibalization due to domestic market saturation, possible political complications in foreign markets.
  37. Conclusions from SWOT. Maybe Costco should start accepting manufacturer coupons…
  38. On the front-burner: The man who invented this industry is 79. It was his vision alone that made Costco what it is today. There is an ongoing gender discrimination case. Improper accounting led to an ethics and compliance program which must be strictly adhered to.
  39. Identifying Strategy
  40. Strategy Identification overview: Generic Competitive Strategy, complementary strategic options, functional area strategy and timing
  41. Costco only sells top-quality merchandise at the lowest price. Sometimes their items are a little more, but it will be higher in quality and still cheaper than at other stores.
  42. Costco partners with manufacturers to make bulk packages and also to manufacture the Kirkland Signature brand (high-quality at a low price). Costco sells everything online. Some of their best deals are online.
  43. Costco is constantly developing new ways to package products cheaper, reduce handling, and improve distribution efficiency. Costco cuts costs by not marketing to non-members. Costco owns 80% of their real-estate and buildings.
  44. Costco was the first to open Business Centers, delivering office supplies to local business. Costco was green from the very beginning, to save money. They have always saved on things that other retailers refuse to skimp on like prime real-estate, lights in the parking areas (not necessary with shorter operating hours), and fancy merchandise displays. Costco is getting greener in ways that save them money.
  45. Costco Mexico is a partnership. Taiwan is a subsidiary. Kirkland Signature brand forms strategic alliances with suppliers of products like auto insurance and also with manufacturers like Bumble Bee and Martha Stewart.
  46. Costco is partnering with UST for IT support; 75 out of 100 jobs are in India and only 25 are in the United States. Shipping website orders to customers is outsourced to UPS. {The funny looking UPS vehicle is in Mexico.}
  47. Costco uses the same basic strategy to compete everywhere, but each manager has the authority to make decisions about their own store because Mexico and Japan have different tastes.
  48. Costco must address some macro issues: the domestic market is maturing, they are competing in a fragmented industry (retail), and in the wholesale clubs market Costco is the leader and needs to stay-on-the-offensive.
  49. Costco Business Centers are a good example of Cross business strategic fit which will lead to higher performance and the 1+1=3 gains for shareholders.
  50. Unrelated Diversification: travel, optical, automotive, financial services like 401(K)s Loans, insurance, Pharmacy, Recycling old electronics.
  51. Unrelated diversification. These services help improve member loyalty. Costco can easily partner with new service providers; they just need to put their name on it and offer it to their members.
  52. Deceptive practices: Costco was increasing the size of their  “Kirkland Signature” tuna, from 6 ounces to 7 ounces. They somehow forgot to mention the price per can increased!  Bottom line: the price per ounce has increased. Also, if margins are so slim, how can everything be rounded up to .99. that makes no sense.
  53. If Costco followed their own ethic a little better (“Obey the law.”), these lawsuits would not come up. So far, they are losing a lot of revenue.
  54. Costco’s Code of Ethics is very simple. Accomplishing 1 – 4 will lead to 5. Rewarding the shareholders is the ultimate goal. The full version of ethics is quite lengthy and wordy.
  55. Costco has donated more than $140 million in just the past 10 years. Employees are actively involved in the community with reading programs, scholarship programs, and raising money for children’s hospitals.
  56. Costco wants to improve the environment. They have a new recycling program. They partner with gazelle. They buy used electronics.
  57. They have live chat. There is a list of gadgets they will buy. you can look up by zip code and find recyclers near you. They give you a map to find them.
  58. Costco is experimenting with green packaging and they also make their own line of green cleaning products.
  59. Energy Management and Conservation: use of skylights, control lighting based on the time of day, evaluating lighting technologies for better light at a lower cost, high efficiency heating and air conditioning, solar panels,hybrid delivery trucks. This benefits the members, shareholders, and communities where they do business.
  60. Costco installed their first solar power system in 2006 at Lancaster, CA. It was so successful they are installed 4 more. Costco has the largest privately owned, multi-site commercial PV systems in the US. At the end of 2008, they had a total of 17 rooftop installations.
  61. Solar Innovation: Costco is utilizing new technology to save big bucks and at the same time appealing to customers by going green.
  62. you’ll find horrifically environment-unfriendly packaging of many small items (especially electronic items) at Costco.  There are huge plastic blister packs, combination plastic and cardboard blister packs. One trip to Costco can create a huge pile of empty packaging.
  63. The Costco website offers online tools to manage health. Notice the improved vision benefits.
  64. Costco has a diverse work force. This can be a benefit in foreign markets.
  65. Strategy Execution
  66. Costco does an excellent job of recruiting the best and brightest employees. They attract them with high pay and the best benefits in the industry. The employees are loyal. All managers are hired from within so they really know the business.
  67. Core competencies and competitive capabilities put Costco at the top, they include finding and negotiating bargains on quality merchandise, building relationships with manufacturers and suppliers, and ingenuity for cutting costs, conservation, and more.
  68. In organizing the work effort: Costco uses a decentralized structure allowing store managers to make critical decisions about running their store. They utilize strong peer pressure on individuals to act responsibly.
  69. Costco has an Enterprise Facility Information management system, each Costco is connected to corporate, the EFIM provides real-time information, management of control systems (like energy), and an inventory management system that allows suppliers to monitor their own stock levels at any Costco.http://www.energyvortex.com/pages/headlinedetails.cfm?id=1003&archive=1
  70. The EFIM reduces costs related to energy consumption, maintenance, and contracted services.
  71. Non-monetary rewards: Costco only hires the best of the best. There are employee contests with great prizes, it is fun to work there. Monetary rewards: the best pay and benefits in the industry, bi-annual bonus for hourly employees, and free membership. {Also, paid vacation, paid sick days, paid holidays.}
  72. Costco has a high-performance culture. The work environment is fun, employees have contests focused on improving performance with the winner receiving a generous reward. Culture comes from the top down. Quality is very important. The small things are very important. Everything must look right because that’s the way Jim wants it, and you never know when Jim will fly in for a visit.
  73. Evaluating Strategy
  74. Costco is building new warehouses and acquiring new members. These trends are expected to continue at the same rate despite the recent recession.
  75. Achieving financial objectives: Costco has Better net sales, better net income, and keeps expenses down year after year.
  76. If you look at 1999 & before you can see that on the average, a Costco will perform better year after year, and each year there are more Costcos.
  77. Costco.com earned nearly $2.0 billion and Costco.ca earned $150 million. The chart shows a steady increase in sales.
  78. quarterly profit fell 29% because of softer sales and litigation charges (due to poor ethics), and aslump in spending on discretionary items like jewelry. Increased employee health care costs were also a factor.
  79. At the end of 2008, there were 550 Costco’s in all. Costco is in 7 countries. One of their next goals is to expand into Europe. There are plans for 20 more Costco’s in Mexico.
  80. US sales were down the last couple of months, but international sales look great. Too bad that 79% of our sales are from the U.S., and only 21% are international.
  81. Inventory turnover is a biggy in the wholesale club industry. Costco has the best. Costco has a good ROI and growth rate. Costco’s goal is very low margins. They got beat by BJ’s. Perhaps because of lower pay and benefits.
  82. Stock performance: Costco is the blue line. Shows value of stock from Jan 05 to June 09. BJ’s has been beating Costco here too, but Costco is #2!
  83. Image and Reputation: The most recent American Customer Satisfaction Index again placed Costco at the top of the list of retailers for the fifth consecutive year, and Fortune Magazine named Costco the fourteenth most admired company in the U.S. this year.
  84. Recommendations
  85. We love Costco’s strategy, but we want to make some adjustments.
  86. When Clinton was President he said, “Start excepting food stamps and educate people about food stamp eligibility.” Nationwide only 67% of eligible people take advantage of the Food Stamp Program.
  87. People save lot’s of money with bulk prices. The savings on these food items totals $367.
  88. Costco should attempt to acquire BJ’s Wholesale Club. They can gain 180 stores without worrying about market saturation. Then they will be ahead of Sam’s club. Costco already has a lot of stores on the east coast so their distribution network is in place. Employees would gladly trade for higher pay and better benefits.
  89. Go Global: Get 50% income from international sales, Partnerships in more countries, and More profit sanctuaries. The Costco formula can work anywhere. As an adept first-mover, they can dominate the international markets.
  90. Be more ethical: Costco settled some major lawsuits this year, the red ones, and they are currently involved in a large number of legal proceedings and audits that could unfavorably affect operations or require substantial amounts of money. Legal Defense is very costly, and not just in money, diversion of management’s time and talent is also costly. Just obeying rule #1 will save millions and help prevent price increases.
  91. Change Ethics:Ethical universalism will not continue to work in the international environment. SinceCostco wants to grow there, they needs to modify their current philosophy, and begin to use the integrated social contracts theory. This will better suit foreign countries like Japan where the culture and social customs are very different from the United States. They also need to retrain the unintentionally amoral managers, and weed out the intentionally amoral managers.
  92. Adding Services is a good way to counteract the negative effects of current market conditions. It’s very easy for Costco to place their brand name on something and offer it to their members. Adding new services like money orders and money transfers could save members time and give them one more reason to renew memberships.
  93. Costco is the Industry leader. They need to stay on the offensive. They originate ideas (like Costco Business Centers) and the competition duplicates them. Costco has some promotions, but they need better ones like this free 60-day pass for BJ’s. BJ’s also accepts manufacturers coupons and food stamps. Costco should use BJ’s ideas that can be adapted to fit Costco.
  94. More efficient e-commerce: There are seven Costco websites; 2 are e-commerce sites that don’t ship outside the US or Canada. We want to see one e-commerce site that has multiple-language support, and ships anywhere in the world.
  95. Preserve Corporate Culture: Jim is 79. Costco will lose the man who invented the wholesale club industry, who had the passion and drive to make it what it is today. With a new CEO things might change. In order to reduce the impact, Costco needs to find ways to adhere to its core values. So it can keep what makes them Costco.
  96. Any questions?