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The main elements of Costco’s strategy
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Costco Wholesale Corporation was an uncommon type of retailers called wholesale clubs. These clubs differentiated themselves from other retailer by requiring annual membership purchase. Especially in case of Costco, their target market is wealthier clientele of small business owners and middle class shoppers. They are now known as a low cost or discount retailer where they sell products in bulk with limited brands and their own brand. The company is competing with stores like Wal-Mart, SAM’s, BJ’s, and Sears. The case begins with an individual shareholder, Margarita Torres, who first purchased shares in 1997 and who is trying to evaluate the operational performance of the business in order to make a decision rather or not purchase more shares …show more content…
In case A, the protagonist organizes her analysis into three parts: common-size financial statements, sustainable growth modeling, and benchmarking ratios. With these methods she is willing to review Costco operations and evaluate her investment. As we have learned how to calculate ratios with the financial statements, I think Costco is performing well compared to other competitors. Costco’s current ratio is 0.94 when Sears is at 2.32, Wal-Mart is at 2.7, and BJ’s is at 1.2. Costco is the only one whose current ratio is less than one. Inventory turnover of Costco is 11.7. Therefore, days inventory (DIO) is 31 days when dividing 365 days by 11.7. Average receivables period (DPO) is 3 and average payable period (DSO) is 33. DIO plus DSO minus DPO is 1 meaning there is only one day gap. This simply tells her that the company is performing well. Only concern or problem from case A is that all the international stores are off the balance sheet. I think this is really important for her because international stores have high potential growth. It must be listed in the financial statements to evaluate her investment on the company since her investment is not only toward domestic but including international …show more content…
Some of the factors that should be considered when forecasting is number of new stores, sales per store, membership growth, operation margin, and international expenses. There are many assumptions made to create forecast income statement, forecast common-size income statement, and forecast abbreviated balance sheet. In addition, the five factors that the protagonist choose to determine the future performance of Costco seems quite appropriate except few. The number of warehouse is too assertive and the membership base is having constant renewal rate which should be considered more carefully with factors like scale economics and new competitions. In my opinion, she should consider more factors when forecasting the growth. Return on equity of 12.45% might be relevant factor to use for forecasted growth rate. G = (1-p)*ROE – (1-0.01)*12.45 –
On April 4, 2008 Goldman, Sachs & Co. submitted a prepared prospectus for Dollar General Corporation. According to the prospectus, Dollar General is the largest discount retailer in the United States by number of stores. They serve a broad customer base and majority of products are priced at $10 or less and approximately 30% of products are price at $1 or less. They believe that their combination of value and convenience is what has kept them ahead of their competitors since opening in 1955. Dollar General has had substantial growth in recent years, growing their number of stores from 5,540 as of February 1, 2002 to 8,229 as of February 2, 2007. This growth encouraged Richard Dreiling,
However, it does not operate any stores outside of the United States, so it does not present a international threat to Costco. Sam's Club, another membership only warehouse club, owned and manage by Wal-Mart. It works mainly in the United States, but has fews in only 3 foreign countries. Anyhow, we can say that Costco dominates the global market for American membership only warehouse clubs. Compared to his competitors , Costco has been a sucess on the international market with a strong value proposition and mission, but mainly a strong strategy in theirs decisions to enter or not in a specific market. For exemple Costco has an inventory turnover ratio of 11.3, which is better than its main competitors, Amazon.com, Inc. (Amazon). Amazon inventory turnover was 7.6 in 2015. With the given turnover ratio, the company take way more days to sell its stock. By having a better inventory turnover ratio and the lowest inventory turnover days possible mean that the company enhance low stocking costs, which increase the overall operating performance. As well we notice that they increase theyre gross operating profit almost every year. However the main profit come from the US territory while the company is struggling in international locations, where comparable-store sales dropped by 8% in Canada during the month and 6% for all of its other international locations combined. This issue is mainly the result
Analyzing Wal-Mart's annual report provides a positive outlook on Wal-Mart's financial health. Given the specific ratios and its comparison to other companies in the same industry, Wal-Mart is leading and more than likely continue its dominance. Though Wal-Mart did not lead in all numbers, its leadership and strong presence of the market cements the ongoing success. The review of the current ratio, quick ratio, inventory turnover ratio, debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all indicate an upbeat future for the company. The current ratio, which is defined as current assets divided by current liabilities, is a measure of how much liabilities a company has compared to its assets. Wal-Mart in the year of 2007 had a current ratio of .90, and as of January 2008 it had a current ratio of .81. The quick ratio, which is defined as current assets minus inventory divided by current liabilities, is a measure of a company's ability pay short term obligations. Wal-Mart in the year of 2007 had a quick ratio of .25, and as of January 2008 it had a ratio of .21. Both the current ratio and quick ratio are a measure of liquidity. Wal-Mart is not as liquid as its competitors such as Costco or Family Dollar Stores Inc. I believe the reason why Wal-Mart is not too liquid is because they are heavily investing their profits for expansion and growth. Management claims in their financial report that holding their liquid reserves in other currencies have helped Wal-Mart hedge against inflationary pressures of the US dollar. The next ratio to look at is the inventory ratio which is defined as the cost of sales divided by average inventory. In the year of 2007, Wal-Mart’s inventory ratio was 7.68, and as of January 2008 it was 7.96. Wal-Mart has a lot of sales therefore it doesn’t have too much a problem of holding too much inventory. Its competitors have similar ratios though they don’t have as much sales as Wal-Mart. Wal-Mart’s ability to sell at lower prices for same quality, gives them the edge against its competition. As of the year 2007, Wal-Mart had a debt ratio of .58, and as of January 2008, it had a debt ratio of .59. The debt ratio is calculated by dividing the total debt by its total assets. Wal-Mart has a lot more assets than it does debt so Wal-Mart is not overleveraged.
Costco Wholesale Corporation is an international chain of membership warehouses operating on the concept that offering members lower prices will produce high sales volume and rapid inventory turnover (“Annual Report” 4). While Costco warehouses are designed to help reduce costs for small-to-mid-sized companies, memberships are also available for individuals (“Company Profile”). The two memberships offered by Costco include Business and Gold Sta...
The retail stores of JC Penney and Sears have face headlines of “Which is Worst: JCP or Sears?” The end maybe near for both companies (Andersen2014). The customers look at the employees like their idiots. The public believes that poor management is the reason for the down fall of these companies. Eddie Lambert and Ron Johnson are the CEO’s of being credited to running these companies with wrong management strategies (Andersen 2014). Ron Johnson who is now the former CEO was highly qualified with his retail instincts tried to run the store like a retail boutique. He never took the time to consult a survey on what the consumer’s thought were and after two years he jeopardized the company (Andersen 2014). Whereas the CEO Eddie Lambert of Sears
Let start with Costco. Costco is Wholesale, Retail Corporation which operates an international chain of membership distribution centers that provides quality, brand name merchandise at noticeably more affordable rates than a conventional wholesale or retail sources. Costco 's warehouses display the largest and great product categories such as groceries, candy, appliances, television and media, automotive supplies, tires, toys, hardware, sporting goods, jewelry, watches, cameras, books, house wares, apparel, health and beauty aids, tobacco, furniture, office supplies and office Their ability to distribute the cut rate from their operating proficiencies in supply chain management and cash flow, permits them to offers items at discounted rate and a lower price than their competitors. For Costco the meaning of being the low-cost provider while also differentiating from the competitors is ambiguous at best. Costco’s CEO, Jim Sinegal, is certain that low priced, and the high value merchandises are exactly what is needed maintain and achieve a staying power in the industry.
There is a reason that it is the second largest and continues to grow. There are many things we can take from what Costco has done. Craig Jelinek said “treat the consumers with respect and treat employees with respect, good things are going to happen to you.” He treats his consumers with respect and they keep coming back to buy more good at the lower prices that Costco has. All of the benefits that he is giving his employees between their wages and healthcare, this in return puts money back in the economy and makes for a healthy country. Another thing to learn from this is creating a happy work environment. By treating its employees well Costco believes that it is creating a happy work environment in which they believe will result in a more profitable company. Also what you can learn from Costco is they are marking things up by fourteen percent or less. This is attracting customer to their goods, and as stated in the article by David Schick “they are selling more olive oil, more cranberry juice, and more throw rugs than just about anybody.” This is allowing Costco to get larger discounts from their suppliers and allowing Costco to set the industry’s lowest price. Some simple things as that are good to take away from what Costco has done. Treating people right makes them want to come back, lower prices helps you sell more and get larger discounts when you buy things, and helps you
The book begins with Collins describing the research that he and his team performed in order to write this book. The main factor of the selection process was the “period of growth” and if these companies were able to maintain monetary success over a long period of time (Collins, 2001). Once the selection process had been completed, the organizations that were selected for continuation in this process included but is not limited to: Walgreens, Wells Fargo, Gillette, Fannie Mae, and Nucor.
The company that we are auditing is a regional convenient store chain called Wawa. Many local people think that the store is a cash cow that cannot do anything to hurt its profits or market share. The truth is, the company is large and successful but it is not invincible and for many reasons. The company is privately traded, meaning it cannot issue common stock to help itself get out of hard times financially. Wawa is local with stores in New Jersey, Delaware, Pennsylvania, and Virginia. Although Wawa has a good reputation with local people, out of town people are not as aware. Fortunately, Wawa distributes products that are inelastic in nature. Gasoline, food, and tobacco products for most people, no matter what the condition of the economy is or how much money they cost, they will still buy them.
The corporation I chose to discuss is McDonald’s. McDonald’s is a publicly traded corporation that includes the following domestic companies, McDonald’s, Chipotle Mexican Grill, and Boston Market. This paper will discuss the following:
The Body Shop International case is an interesting case study into the miscommunication of owners and stockholder interests with regard to financial conditions. Anita Roddick, the founder of The Body Shop had no financial experience and thought that all she needed to do was expand her business and the financing would take shape as she developed her business. While Anita’s product concept of a natural skin-care line was good; her lack of experience in financial matters took its toll on her business.
For one of my selections for buying stock, I invested into Starbucks, this company has attracted me with their wonders of different coffees, and I knew many others were interested in the very popular coffee company. Starbucks all started 1971 in Seattle Washington. With three men which were Jerry Baldwin, Zev Siegel and Gordon Bowker each of them put in one thousand three hundred and fifty dollars along with a barrowed five thousand from the bank to start up there small coffee shop in pick place market, witch is located in down town Seattle. The name for this company was inspired from the character Starbuck from Moby Dick; this character was a coffee lover. There close friend designed there well known logo. These men never thought of this small company to get large they just thought of it as a small coffee shop. Out of all three men Siegel was the only one that work at it full time. The men depened on a man named Alfred Peet for there coffee beans but soon then started there own blends of coffee beans. With in a year opening the first store they were able to open a second store. When the 1980’s rolled around, it was a thriving company, in the Seattle area. However, the co-founders began to have other interests and were involved in other careers simultaneously. Despite that, the company was about to undergo a major turning point. A man by the name of Howard Schultz started to pursue an interest in the company. He noticed that the coffee shop had a wonderful environment. He started asking a questions and becoming more and more interested by every moment. He loved how the founders had so much knowledge on the coffee and each blend. In 1982, Schultz became director of retail operation. This was just the start to a new phase with the company.
During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task.
For this assignment, I used Walmart as an example for an organization that is a major player in the U.S. economy. They have been in operation since 1962, and their services are many, including retail, groceries, electronics, and home improvement. Walmart is considered the largest among all retailers, so it truly belongs to the retail industry. They do, however, face many challenges from industry competitors, such as Target, Big Lots, and Costco. Mr. Sam Walton (Walmart’s founder), however, has earned incredible success for Walmart in the retail market with an ever-expanding customer base. He started his business back in 1945 from a branch of Ben Franklin Stores, with a focus on selling products at lower prices to get higher-volume sales at lower-profit margins.
The corporation I have chosen to assess for this project is Wal-Mart. Wal-Mart is a retail company that is incorporated in Delaware, which trades under three segments: Walmart U.S., Walmart International and Sam’s Club. The company history shows that the road to Wal-Mart was a long one. The company started under the name Walton’s 5&10, which was opened by Sam Walton in 1950 on the Bentonville town square. Over the years the company was successful and on July 2, 1962, Sam Walton opened the first Walmart store in Rogers, Ark. By 1967 the Walton family owned 24 stores and rang up $12.7 Million in sales. In 1969 the company officially became incorporate as Wal-Mart Stores, Inc. In 1970 Wal-Mart became a publicly traded company, and the first