Business Policy and Strategy Case - IKEA

Costco Case Analysis

05/21/2019

Dr. Sabolic

Submitted as partial fulfillment for the requirements of MGMT 483 BT

Team members:

Abdulaziz Samkary

Chihong Hieng (Dylan)

Abdullah Alhuwaimani

Maha Alnami

Costco Case Analysis

1. Competitive Strength Analysis

Business Model

The business model of Costco is basically using a membership of warehouses club. The memberships of the club is providing to their customers the ability to shop at Costco stores and have the access to buy the products with the lower price.

The strategies that Costco using them to make money:

1. The Price is less than the competitors, which attract the customers, as well the high quantity of all the products.

2. Scarcity the number of products in shelves. For example: comparing Walmart to Costco, Walmart carry 150,000 items, Costco only carry 4,000. They limited the number of products to give more value to their products.

3. They having their own private label power, in order to provide their customer an economical options for their shopping lists. In addition, it’s 10-20% lower than other brands.

4. They have 4 types of membership model, that includes customer discount, and offers such as gas station and groceries. As a fact Memberships is the most effective strategy that Costco Considered.

5. They are using marketing in their magazine, coupon mails, and weekly emails from Costco.com.

What is happening now, today?

· They applied strategies and techniques that helped the company making more money, as well hire more employees and lead the company to succeed.

· The website covers about 90% of the products that are in the store.

· They offer organic food.

· Costco memberships could replace Netflix subscription.

2. SWOT

Strength:

Costco is one of largest retailer in the U.S. and seventh largest in the world that offer membership warehouse club. Costco offers wide selection of merchandises and wide range of products in high volume with low prices to its membered customers. The company has many stores location in the U.S., Canada, Mexico, Korea, Japan, UK, and many others. It also offers e-commerce website for customers to order products online, this way it allows customers to have more access to Costco’s products and more convenient. Costco is able to provide low prices for its merchandises by buying directly from the manufacturers, this way it also allows Costco to eliminate the traditional middle distributor and increase in inventory turnover. It also has its own in-house brand that produce high quality products with better value compare to its competitors.

Weakness:

Costco offers limited variety of merchandises and brands in stores, which limit the freedom for customers to have more choices when purchasing products. It also has different operation schedule compared to others retail stores. Costco only open from 10am to 8:30pm and it also has an earlier closing hours on the weekend, which could be inconvenient for its customers who want to come to the store on regular hours. By offering limited brands and shorter operation schedule, it could drive Costco’s customers to go to other retailers to meet their need such as Target and Walmart.

Opportunities:

It is an opportunity for Costco to improve their weaknesses such as offering more variety in products and brands that it carries in store, improve e-commerce to reach more market and countries, because e-commerce is a huge trend for business today that allows businesses to reach to its customer faster and easier. Increase its operation schedule to compete with its competitors and meet the consumer needs.

Threats:

Despite Costco’s success in their business strategy, there are also some competition in the market that could potentially overtake and threat Costco. Wal-Mart is growing and developing quickly in spreading their brand international, other retailers such as Target, Kohl’s, Sam’s club, and many others that try to compete in the retailers industry and offer lower prices in merchandise. These could challenge Costco’s business and steal Costco’s customers, therefore it is significant for Costco to be aware of its competitors and understand the market well in order to succeed in the business.

3. Financials

Ratios:

.P/E ratio = Share price / Earn per share

= 248.35$ / 7.79 = 31.88

.Current ratio: Current Assets/Current liabilities

20,289/19,926 = 1.01

.Quick ratio = Total current assets- Inventory/ Total current liabilities

= 20,289 - 11,040 / 19,926 = 0.464

Sales growth rate has been increasing 11% each year since 2015.

- - - - - - - - - - - - -

According to the report, the Gold Star members in 2018 have increased by 2.1 million customers which is an increase of 5.4% from 2017. The current Gold Star members are 40.7 million.

The report shows an increase of 100,000 Business members which is 0.92% increase from 2017. The current Business members are 10.9 million.

Costco’s cash flow of 2018 have decreased 956,000$ which is around -14.15% from 2017.

4. Conclusions & Recommendations

Recommendation

According to the analysis that conducted above, at this moment present the following recommendations that seek to improve the position of Costco Company. The recommendation is strongly anchored on the finds from the financial analysis as well as the marketing strategies employed by the company. The recommendations are as follows.

• There is a need for the company to improve or increase the inventory turnover to have the business enhance its financial soundness.

• Enhance the average collection period for the accounts receivables to improve on the cash inflows of the company.

• Reduce on the payments and which helps in increasing the inventory levels.

• Investigate more on the major areas of weakness to apply the necessary measures for this company.

Conclusion

According to the analysis that I have conducted for the company, the financial reports reveals that the business is not doing well at all. There are many indicators that the future of this company is not certain, owing to the negative financial reports. Some areas that reveal serious weaknesses for this business include collection period for the accounts payable as well as the stock levels maintained by this company. The ratios conducted for this company are below the average, and this gives a hint on how bad the company is performing, these areas include profit margin, credit controls, and the management of inventory. For this area that has registered weaknesses, there needs to be a series of an in-depth investigation to understand the root causes of the problem and also employ the recommendations made above to ensure that this company gets back to its healthy state.