Essay on Costco Case Study

Words: 1100
Pages: 5

The chief elements of Costco’s strategy are low pricing, limited product selection, and a treasure hunt shopping environment.
• Pricing: a key element of their pricing strategy is to cap its markup on brand-name merchandise at 14% and markups on their private label items can be no higher than 15%. This strategy keeps customers coming in to shop by enticing them with low prices.
• Product Selection: this portion of the strategy only provides members with a selection of about 4000 items. Their product range covers a broad spectrum but the selection in each product category is limited based on fast-selling models, sizes, and colors.
• Treasure-Hunt Merchandising: while the product line consists of 4000... Costco goes out of its
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Costco’s receivable period was 3 days in 2001 and 4 days in 2010. This indicates Costco collects funds in a relatively short period of time, which will reduce the chances that the receivable will need to be charged off. The competitors are relatively consistent with Sears at 5 days, Wal-Mart at 3 days and BJ’s at 5 days.


Below are some ratio trends and graphs. Based on the trends you can see each of the categories have been relatively constant. The ROE decreased in 2009 to 10.83% compared to 13.95% in 2008. However as of August 2010 ROE has increased to 12.03%. The ROA decreased as well in 2009 to 4.94% compared to 6.20% in 2008. Again like ROE, the ROA has increased to 5.47% as of August 2010. The Financial Leverage, Profit Margin and Asset Turnover have been relatively consistent over the past 10 years.

In 2009 Costco struggled just as all business did due to the deep recession. While their sales and profits were less than in fiscal 2008, Costco remained solidly profitable in fiscal 2009. During the past fiscal year they opened twenty new warehouses; increased their membership cardholder base by 2.3 million members, with membership renewals remaining strong at over 87%; and their employees continued to have job security along with one of the best wage and benefits packages in the retail industry. Fiscal 2009 was the first time in their history when sales did not achieve record highs. Sales were $69.9