Costco: Join the Club

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"Costco's mission is to continually provide our

members with quality goods and services at the
lowest possible prices. In order to achieve our
mission we will conduct our business with the
following Code of Ethics in mind:

Obey the law

Take care of our members

Take care of our employees

Respect our vendors

If we do these four things throughout our

organization, then we will realize our ultimate
goal, which is to reward our shareholders."

Overview of Case

Organizational Design

low cost leadership

broad competitive sculpt

decentralized structure

Mature

Assessing Organizational Effectiveness

effective

high customer satisfaction

shareholder satisfaction

employee engagement

out-competing rivals

achieving financial/strategic objectives

Strength
Lowproductandservices

Weakness
Comparativelylessattractivestore

Internal(Homegrown)top
managementteaminmajority
Employeesturnoverwithinayear
ofrecruitmentisjustsixpercent
Uniqueabilitytokeepoverhead
costlowresultinginlowpricesofgoods
andservices
Loyalandaffluentcustomerbase
Highinventoryturnovercomparing
toitscompetitors
Consistentreturnonsalesand
returnonassets
Incrediblereturnpolicy

layoutforluxuryitems
Weakadvertisementbaseleadingto
theinabilityofreachingfullrangeof
membershipbase.
Decliningorinconsistentprofit
margins
Notwidelyscatteredaroundthe
worldthanitscompetitors
Locationisnotattractiveintermsof
real-estate
Noself-checkout
Primaryfocusonbusinesscustomers
ratherthanindividualcustomers

Opportunities

Threat

Costcosoperationsismainlytargeted

Costcocannotattractpeoplewhoare

incountrieswherethereishighGDPand
highdisposableincomeoftheconsumers
(Canada,U.S.AandJapan)withlow
inflationrateinthecountries
Servesthedemocraticcountries
withpoliticalandgovernmentalstability
Rapidgrowthinmembership
Possibilityofinternational
expansion
Advantageofeconomicdownturn
Increasingbrandawareness
Positiveimageintermsof
employeespayandsocialresponsibility

belowpovertylineduetoitsmembership
feesandbulkpurchase
Notwelldiversifiedintermsof
geography(presence)
HighcompetitionfromSamsClub
andBJ
HighlydependentonUnitedStates
andCanadianmarket.
Largelydependentonvendorsfor
timelysupplyofqualitymerchandiseat
reasonableprice
Highmarketexpectationintermsof
price,qualityandfinancialperformance

Costco Employee Compensation

vs. Industry Standard

Starting pay is $10

Company Sponsored Health Care

Included Retirement Plan

Sams club pay 9.86

Industry Average pay: $11.39

Less than 50% of Walmart Employees have health insurance

Our Analysis

Low Turnover

Loyal

Productive Workforce

International Issues

Costco in Cuernavaca Mexico

Accused of cultural Insensitivity
Threat to local retailers

Costcos Response

"We think that we have not only obeyed the law ... we have been sensitive to
the culture of Mexico," Sinegal

Our Analysis