Clearly further analysis is necessary to understand why Costco struggles in other regions of the world, yet the company's financial performance on a global level continues to be exceptional due to the factors cited earlier.
What is needed is for the company to concentrate on how to better understand the cultural dimensions of the nations they are operating in today and planning to sell into in the future. The Cultural Dimensions Model (Hofstede, 1998) would be an invaluable framework for the company to use in defining market entrance, market growth, and market strategy maintenance strategies throughout the individual country and region markets they hope to succeed in. The need for more of a focus on how their supply chains can scale into these other regions is also vitally important as well, as today the majority of their suppliers are more oriented towards supplying the U.S. And Canadian markets over being able to scale globally themselves (Boyle, 2008). In conclusion, the Costco is being profitable with their expansion strategies into foreign countries, yet they are not achieving the level of growth they are capable of based on the success of their business models' potential as shown in the U.S. The company will need to confront the issues mentioned here in order to successfully grow over the long-term.
5. Are Costco's prices too low? Why or why not?
No, Costco's prices are not too low, and there is financial proof of that in Table 1: Costco Wholesale Corp Ratio Analysis. Notice that EBITDA Margin % is consistent over the time period of the case study. Costco competes with WalMart in the areas of consumer electronics, an industry WalMart is attempting to dominate specifically in the area of flat screen televisions. Costco is attempting to rely on the supply chain efficiencies it has been able to attain to this point to deliver greater cost reduction to its customers and therefore build a strong value proposition in response to WalMart as well (Boyle, 2008). Second, Costco has been successful in significantly reducing its Cost of Goods Sold (CGS) by integrating private label merchandise into its merchandise mix over the last several years (Steverman, 2008). Third, Costco has been one of the few companies to continually refine their adoption of Radio Frequency Identification (RFID) in their logistics and supply chain processes (Boyle, 2008). All of these factors taken together have significantly reduced the operating expenses of Costco and therefore made it possible for them to charge lower prices.
Appendix
Table 1: Costco Wholesale Corp Ratio Analysis
Profitability Ratios
9/3/2006
8/28/2005
8/29/2004
8/31/2003
9/1/2002
ROA % (Net)
6.38
6.75
6.26
5.83
6.47
ROE % (Net)
12.04
12.92
12.48
11.8
13.27
ROI % (Operating)
16.61
15.97
16.57
15.73
17.94
EBITDA Margin %
3.6
3.74
3.84
3.73
3.89
Calculated...
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