Qualitative and Quantitative Costco Internal Assessment

Costco Internal Assessment Part 1 Qualitative Analysis Brief Company Overview Having commenced its operations in 1976 with the establishment of the very first retail warehouse club in San Diego by a warehouse club retailing pioneer by the name Sol Price, Costco has grown to become one of the largest retailers in the world. The company’s first location mainly served small enterprises and was located in a modified/adapted plane hangar (Costco, 2019). The name of this first establishment was Price Club.

It was, however, not until 1983 that the first Costco was opened by James D. Sinegal and Jeffrey H. Brotman in Seattle. In 1993, the two formations (Costco and Price Club) merged to become Price/Costco, and six years later, the corporation adopted its current name. Presently, the company is headquartered in Issaquah, Washington and company has operations in not only the United States, but also Spain, Australia, the UK, and Mexico.

When it comes to Costco’s business model, it is important to note that the corporation “provides a wide selection of merchandise, plus the convenience of specialty departments and exclusive member services, all designed to make your shopping experience a pleasurable one” (Costco, 2019). In essence, the corporation engages in the operation of membership warehouses together with its various subsidiaries (Yahoo Finance, 2019).

Towards this end, the corporation offers for sale “dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio products; meat, bakery, deli, and produces; and apparel and small appliances” (Yahoo Finance, 2019). Further it is also important to note that in addition to engaging in travel business and running food courts and optical dispensing centers, the corporation also operates pharmacies and gas stations.

At present, Craig Jelinek serves as Costco’s CEO and president, while Hamilton E. James serves as its Chairman. The company’s mission statement is captured as “to continually provide our members with quality goods and services at the lowest possible prices” (Costco, 2019). The corporation does not have an official vision statement.

With regard to its corporate values, it is important to note that the company seeks to operate within the set legal parameters, ensure its employees are well taken care of, serve its customers in the best possible way, establish meaningful and mutually beneficial relations with suppliers, and ensure that the interests of its shareholders are taken care of (Costco, 2019).

In essence, the company’s objectives revolve around ensuring that that its operations remain not only relevant, resilient, and responsible, but also in line with its code of ethics and mission statement. The company’s full time employees number approximately 143,000 (Yahoo Finance, 2019). The most recent financial statements of the company indicate that Costco had total revenue amounting to 141.5 billion for the year ended September 2018. The net income figure for the same period was captured as 3.1 billion.

Some of Costco’s key competitors include, but they are not limited to, Wal-Mart and Home Depot. Resources In basic terms, Costco’s tangible resources are inclusive of some of its current assets as well as fixed assets. More specifically, the company’s fixed assets as per its most recent financial statements (i.e. for the year ended September 2018) are inclusive of: land (6,193 million); buildings and improvements (16.1 billion); equipment and fixtures (7.2 billion); and construction in progress (1.1 billion).

The company’s inventory, on the other hand, is indicated as 11 billion. The company’s intangible ‘resources are inclusive of all of its assets that do not have physical substance. It should, however, be noted that Costco does not list or identify any of the more common intangible assets such as trademarks, goodwill, copyrights, as well as patens. However, some of the company’s other intangible assets include, but they are not limited to, its culture and leadership.

This is more so the case given that while a company’s culture could have a positive impact on productivity and ability to effectively compete in the marketplace, the skills and capabilities of leaders could also be considered a critical asset as far an organization’s ability to accomplish its goals and objectives is concerned. All the company’s top executives are accomplished professionals in their respective fields. The company’s CEO, for instance, has had an illustrious career at Costco.

Having worked for the company almost since its birth and having risen through the ranks over time, Craig Jelinek has good understanding of the company’s operations as well as the market it operates in. For this reason, he would be deemed a critical asset to the company. Capabilities and Core Competencies Costco’s capabilities and core competencies lie in its low and consistent pricing, economies of scale, fast inventory turnover, and a very competitive employee compensation structure (Daft, 2017).

When it comes to the company’s low and consistent pricing, it is important to note that Costco seeks to ensure that no product has a markup of more than 15%. Next, the company has a fast inventory turnover as a result of its move to avail a small selection of items. Third, with reference to economies of scale, it should be noted that the company actively seeks quantity discounts on the basis of bulk purchases.

Lastly, the company has over time sought to implement a competitive and fair employee compensation system. As a matter of fact, as Cain (2018) observes, thanks to its attractive employee compensation and benefits, Costco has in the past been listed in Glassdoor’s best places to work. Most workers point out that they were drawn to the company by its pay and benefits (Cain, 2018).

Business Model and Value Change The company has over time adopted a successful subscription business model whereby it charges its more than 60 million members a fee to shop at any of its stores. At present, an individual needs to part with $60 to be able to access membership and thus benefit from the consumer friendly prices. There is also the business membership whereby at $120, the membership happens to be somewhat higher but has unique benefits.

It is important to note that this business model has served the company well as the membership fees effectively make up for the various costs associated with, amongst other things, offering goods at significantly lower prices. Costco is also able to effectively utilize economies of scale by way of making bulk purchases at lower prices.

Further, as it has been pointed out elsewhere in this text, the company not only seeks to operate within the set legal parameters, but also promotes that wellbeing of its employees, while at the same time ensuring that customers are served in the best possible way, and that the interests of stockholders are well catered for (Costco, 2019). Strategic Intent If I were to consult for Costco, I would seek to further promote its low-cost strategy.

This I would do by seeking to optimize all the company’s processes so as to ensure that costs are slashed further. The distribution network would also be streamlined. Long Term Objective The long-term objective of the company ought to be the further expansion of its limited product choice. This is more so the case given that in comparison to some of its competitors like Wal-Mart, the number of products the company stocks is far less.

Although this is a strategy the company employs to promote its inventory turnover, it could act as a cap on its bottom-line. Current Strategy Costco continues to further advance its low-cost strategy while at the same time seeking to ensure that it does not compromise on the quality of goods and services offered to customers. Thus, in essence, it should be noted that pricing remains one of the most critical strategies the company deploys as it seeks to not only maintain its market share, but also sustain its growth rate.

Strategic Synthesis – Qualitative Analysis Waygandt, Kimmel, and Kieso (2015) are of the opinion that “employee compensation is often the most significant expense that a company incurs” (111). For this reason, it would appear that slashing payroll and related fringe benefits would be the most obvious way for Costco to further enhance its bottom-line. However, the company appears to have fully embraced the competitive compensation model. This is a move that has impacted positively on the company.

In addition to being highly motivated, Costco’s employees also happen to be an intensely loyal lot. This has an indirect impact on the company’s profitability as employee turnover is relatively low and employees serve as brand ambassadors. The low-cost strategy the company has implemented promotes its sustainability in the sense that during downturns in economic activity, the company would be in a more sustainable business position.

The company’s individual and business membership model is also a critical component as far as its continued success is concerned. This is more so the case given that this model offers Costco a rather stable revenue stream that is not dependent upon sales of items.

Part 2 Quantitative Analysis Sales Year 2016 2017 2018 Total Revenue 118,719,000 129,025,000 141,576,000 All figures are in thousands Gross Profit Year 2016 2017 2018 Gross Profit 15,818,000 17,143,000 18,424,000 Net Income 2,350,000 2,679,000 3,134,000 All figures are in thousands Profitability Ratios Year 2017 2018 Return on Assets (Net Income/Total Assets) 0.07 0.08 Return on Equity (Net Income/Shareholder Equity) 0.25 0.24 Liquidity Ratios Year 2017 2018 Current Ratio (Current Assets/Current Liabilities) 0.99 1.08 Leverage Ratios Year 2017 2018 Debt Ratio (Total Debt/Total Assets) 0.70 0.68 Debt-to-Equity Ratio (Total Debt/Total Equity) 2.34 2.17 Activity Ratios Year 2017.