Costco Wholesale Corp.: Mission, Business Model, and Strategy 1. What is Costco’s business model? Is the company’s business model appealing? Costco’s business model depends on high sales volume along with quick inventory turnover, which is made possible by low prices and limited product selection. This business model is appealing for them and has many benefits. Firstly, by setting up the business approach to rapidly turning over inventory, the company is often able to sell their products and pay suppliers before the invoice is due, even when the company pays early to benefit from early payment discounts. This frees up capital which allows Costco to finance new inventory purchases with supplier payment terms. Costco then passes
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As a matter of fact, it is very similar to Sam’s Club’s way of doing business. Costco is beating both Sam’s Club and BJ’s Wholesale in net sales and market share. However, Sam’s Club has launched an aggressive campaign to increase its market share. BJ’s Wholesale differs from the other two wholesale clubs, in that its product offering is nearly twice as large. The company also has a broader selection of products, sometimes offering products in three price categories, good, deluxe, and luxury.
6. Are Costco’s prices too low? Why or why not? Sinegal’s reason for selling products at the lowest price possible is due to longevity of the company. If prices remain low forever, consumers will be shopping at Costco for a long time. However, according to Wall Street analysts, if the stockholders in the firm are not making appropriate returns for the risk, they will invest elsewhere. If Costco stock is being sold away, then they will have no investments to remain in the future. Low prices could be a problematic situation for Costco in the long run. As new competitors are bound to emerge, Costco should stress the value it provides to consumers, as opposed to low costs. After all, Sam’s Club offers its customers low prices, with similar store layouts and less expensive membership.
7. Does Costco pay its employees too much? Compared to other retailers, especially Walmart, yes, Costco pays its employees too much but as Sinegal put it, a well-compensated