Achiyat Ulumuddin Chasan

1464002
Strategic Management : Case Assignment 1

Costco Wholesale in 2012 : Mission, Business Model, and Strategy

Summary
Costco is an American membership warehouse club that provides a wide selection of
merchandise. One of the founders is Jim Sinegal whose also being as Costcos CEO for 29
years. The first Costco store built in Seattle in 1983. Cosctos mission is to continually
provide our members with the quality goods and services at the lowest possible prices.
Costco has two business model in operating their stores. The first business model is to
generate high sales volumes and rapid inventory turnover by offering members low prices on
a limited selection of nationally branded and selected private-label products in a wide range
of merchandise categories. And the second business model is to generate the working capital
from its account receivable.
Costco also has strategies to compete with the other warehouse club. The key
elements for it are low prices, limited selection of nationally branded and private-label
products, a treasure-hunt shopping environment, strong emphasis on low operating costs, and
expansion.
Costco has its own business culture which was provided by Jim Sinegal. Their
business philosophy, values, and code of ethics was implemented in every store they operate.
Those five principle are,
1. Obey the law
Costco should run the business in accordance with the laws of every community
where the Costco store operate.
2. Take care of our members
Costco should mantain the trust from the members by providing top quality products
at the best prices in the market, making pleasent shopping environment, and providing
best customer service.
3. Take care of our employees

4. Respect our suppliers

5. Reward our shareholders
There are two main competitors for Costco : Sams Club (a divison of Walmart) and
BJs Wholesale Club. At the moment, Costco is the market leader for wholesale club and
warehouse segment of retailing. Costco has 57% market share accros United State and
Canada, whereas Sams Club has 35% market share and BJs Wholesale Club and several
small warehouse club only have 8% of market share. In term of membership fee, Costco has
higest fee among the competitors as described in the table below,

Costco
Sam's Club
BJ's Wholesale Club

Business
Member
$ 55,00
$ 35,00
$ 50,00

Individual
Member
$ 55,00
$ 40,00
$ 50,00

Premium
Member
$ 110,00
$ 100,00
-

Analysis
In this case, the analysis would be related to the theory on chapter 2 on the texbook,
Charting a Companys Direction : Vision, Mission, Objectives, and Strategy. Coscto still
doesnt state the vision of the company yet. So for the first step, Costcos management should
make vision first for the company. The vision should be forward-looking, focused, sure the
journey is feasible, memorable and also indicate the directional path makes good business
sense.
Regarding to the Costcos Mission, to continually provide our members with the
quality goods and services at the lowest possible prices, the mission statement has been very
effective. The Costcos mission statement has been describe the firms current business and
purpose. It has been answered the question of who are we, what we do, and why are we
here.
The business model of Costco has high relation with their strategies especially in
providing low prices for their customer. The second business model, which is using account
receivable to finance the working capital it means that Costco doesnt need to borrow capital
from the bank to provide their inventory so Costco doesnt need to pay interest. Moreover
Costco can get cash before they pay to supllier so they can get revenue from interest for it. It

influence price for the mercandhise. Because the price is most important variable to win the
competition in retailing industry.
In term of membership fee, we can conclude that the higher amount of the fee doesnt
influence a lot to customers. So the main factor of the customers join the membership is all
about the benefit that the customer will get by having the member card. And from the exhibit
1, we can see that the membership fee revenue is higher than it net income. So the
membership fee is one of the main reason for the company to get positive net income.
Recommendation
There are severel recommendation for Costco management to mantain and also
increase the firm performance,
1. Develop a strategic vision for the company and communicate it with the employees,
management, customers and shareholders.
2. Costco still focus on individual members which is in 2011 business cardholder has
6.300.000 members and individual cardholder has 57.700.000 members (See Exhibit
1). The management should make a strategy to increase the business members.
3. The management should mantain the benefit for membership cardholder related to the
highest fee among the competitors.