1. Company Introduction
-The origins of the company can be traced back to 1976, when Sol Price opened a store named “Price Club” in San Diego. Though Price Club was initially a failure, Sol Price realized that he could achieve success if he offered a membership service and sold large amounts of merchandise for small prices. With this new strategy, Sol Price, with the help of Jim Sinegal, who became manage of Price Club, achieved success. Sol Price left Price Club to start his own operation, and Jim Sinegal partnered with Jeff Brotman, a Seattle entrepreneur, to establish Costco, which came into existence in Seattle in 1983. Costco quickly became incredibly successful, and remains so today (p. C-7).
-Costco’s mission is to take care of its employees, reward its shareholders, aid in environmental protection, and provide its members with exemplary customer service and the highest quality merchandise at the lowest possible prices (p. C-9).
-Costco’s key strategy involves extremely low prices (p. C-9), which it achieves by offering fewer products than its competitors, albeit products that will sell regularly and quickly (p. C-10). Costco also maintains low prices through low operating costs (p. C-12) and minimal advertising (p. C-13). In addition, Costco also engages in treasure hunt merchandising as part of its strategy, wherein it will continually change up to a quarter of its offerings (pp. C-11-12).
-Costco’s major goals include increasing sales of each store by five percent annually, as well as opening additional domestic and international locations (p. C-12).
2. Important Resources and Capabilities (Strengths and Weaknesses)
-Costco has several resources, which contribute to the development of its capabilities.
-These resources include physical resources, which include the company’s buildings and real estate (p. 97) Costco has several warehouses in both domestic and international locations, namely Japan (p. C-13). These warehouses consist of concrete floors and virtually zero decorations to minimize distractions and increase efficiency (p. C-12). This represents a possible weakness, as the sheer size of Costco warehouses means that expansion into urban areas, which are rapidly developing, could be limited.
-These resources include organizational resources, which include the company’s organizational design, planning, and coordination (94). Costco’s business model centers on enormous sales volumes and prompt inventory turnover, coupled with low operating costs that result from efficient distribution and reduced handling of merchandise (C-9). This represents a significant strength, as it enables Costco to keep its costs low.
-These resources include brands, company image, and reputational assets, which involve brand names and reputation (p. 97). Costco is reputed to offer the lowest costs for products, and it achieves these low costs partially through sales of its brand, Kirkland Signature, which are responsible for one-fifth of the company’s annual sales (p. C-10). This represents a significant strength of the company, as one of its key goals is to offer the lowest prices possible.
-These resources also include company culture and incentive systems, which include business principles and employee motivation (p. 97). Costco is devoted to its members, employees, and the environment, a devotion that underpins its business principles (C-9). Costco also treats its employees well, providing excellent wages and benefits, which leads to positive employee motivation (pp. C-16-17).
-These resources also include relationships, which include various alliances and partnerships (94). Costco strives to be a “one-stop” shopping destination for consumers, and some of its warehouses include partnerships with optometrists, so that customers can have an eye examination or purchase contact lenses, and with pharmaceutical companies, as customers can pick up various prescriptions. Other services offered include gas stations, car washes, hearing aid centers, and car washes (C-11). This is a major strength of the company, as it helps draw in new customers and diversify its demographics.
