Costco Business Model

Question: Discuss about theCostco Business Model. Answer: Understanding Costco Costco wholesale is the largest retailer in the world with more than 663 stores. Its business model is based on subscription where customer has to buy a membership to buy a product at a lower price. The company is managing economies of sale by purchasing a large amount of goods at a lower price and transferring the cost on the customers. Companys structure runs on a tight ship. The projected EBITA of Costco in the fiscal year 2Q16 is $ 1.2 billion. The operating profit is expected to increase by 2.3% YOY. The growth rate is expected to be slower in the quarter. Its profitability is increasing marginally as compared to the other competitors (Stickney and Stickney). Factors Influencing Employees Relationship Costco is the company which doesnt makes huge profit but sell products like a surge. The company sells its goods at a much lower price than the other retailers. They believe in establishing a healthy relation with the employees by enforcing mutual cooperation. The employee understands the motive of the business is to create impulsive purchases by the customers due to minimal display. It has kept a lower price to attract maximum customers to its store. It has permanently caped its margin so that members justify to the membership fees. It is due to employees consistent hard work that the company has achieved a steady margin of 10.6%. It has created a maximum hype among customers due to its pricing policy (Daft and Marcic). Comparing Manufacturer Brand from Coco Cola Coco cola has created a huge brand image by investing on the brand promotion techniques. Costcos competitive strategy differentiates it from the other brands because it emphasis on profits from the membership fees and the other ancillary department like sales and services. It has created a cap of 14% for the branded items and 15% through the private label signature items. It offer superior product at a very lower price. The ongoing treasure hunting provides a higher dollar value for a limited time. It is constantly focused on increasing sale by 5% at the store level and 10% at their warehouse. They believe in making an investment on the product instead of spending on other places (Daft). Evolution of Costco Costco is earning constantly through its membership program which persuade customers to spend $55 per year. Most of its business revenue is generated through membership programs. There employees are extremely beneficial for the company. Employees are generating three times than the other retail stores like Wal-Mart and Tesco. Their unique business model attracts employees to renew the membership due to low price. It is consistently delivering best services to the customers. Costco is constantly giving a tough competition to the old retailers like Wal-Mart, Target etc (Dyck and Neubert) Costco: Breaking All the Retail Rules The current brand is different from the other retailers as they never advertise. They provide a limited range of goods to the customer which makes them one of the highest pay scales in the industry. Unlike other big retail giants, Costco media queries are taken by its CFO. It is following a peculiar business system which makes them the second largest store in the United States. It is following a philosophy of promoting from inside rather from outside. Hence their business model is concrete which ignores the peripheral cost rather they focus on providing a direct goods to consumers. 90% of its members renew their membership every year (Costco: Breaking All the Retail Rules"). References: Stickney, P. et al. Financial Accounting: An Introduction to Concepts, Methods and Uses .Cengage Learning, 2009 Daft, R. and Marcic, D. Understanding Management. Cengage Learning, 2008 Daft, R. Management. Cengage Learning, 2007 Dyck, B. and Neubert, M. Management: Current Practices and New Directions. Cengage Learning, 2008 "Costco: Breaking All The Retail Rules". CNBC. N.p., 2012. https://www.cnbc.com/id/47175492. 23 Oct. 2016.