{"id":1735,"date":"2015-12-06T12:33:55","date_gmt":"2015-12-06T17:33:55","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/costco-wholesale-a-warehouse-powerhouse\/"},"modified":"2015-12-06T16:10:07","modified_gmt":"2015-12-06T21:10:07","slug":"costco-wholesale-a-warehouse-powerhouse","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/costco-wholesale-a-warehouse-powerhouse\/","title":{"rendered":"Costco Wholesale: A Warehouse Powerhouse"},"content":{"rendered":"

Business Model:<\/u><\/strong><\/p>\n

Costco has over 600 warehouses and 80+ million cardholders.\u00a0[1]<\/sup><\/em>\u00a0Their business model is built on three key aspects: memberships, low prices, and a great value.<\/p>\n

Memberships<\/em><\/p>\n

To shop at Costco, one must pay for a membership or go shopping with a member. Three membership levels are offered: Gold Star ($55\/year), Business ($55\/year), and Executive ($110\/year). All memberships grant access to all warehouse locations, with additional rewards and services available for the Executive member. [2] <\/sup><\/em>Memberships continue to grow; reach of over 80 million cardholders in 2015 was up from over 75 million in 2014. [3]<\/sup><\/em><\/p>\n

Low Prices<\/em><\/p>\n

Costco offers a variety of goods at competitive prices. Leveraging efficiencies and scale, Costco strives to pass savings from its business on to its customers. [4]<\/sup><\/em><\/p>\n

Great Value<\/em><\/p>\n

Costco competes on both a quality and quantity perspective. A variety of name brands can be found on the shelves as well as private label items. Costco also leverages bulk quantities to drive cost per unit down resulting in a greater value for the customer. A \u201c100% Satisfaction Guarantee\u201d policy gives consumers further confidence they are getting a great value. [5]<\/sup><\/em><\/p>\n

Operating Model:<\/u><\/strong><\/p>\n

Costco\u2019s operations rely heavily on the following characteristics to sustain its business model and create value: store layout, labor, SKUs, and scalable operations.<\/p>\n

Store Layout<\/em><\/p>\n

Costco Stores are \u201cno frills\u201d. With cement floors, metal shelves, and pallets of goods, Costco is a far cry from typical grocery stores. Wide aisles accommodate large carts and many customers to maneuver quickly through the store. Perishable items are located towards the back taking customers on a journey throughout the warehouse as they shop.<\/p>\n

Labor<\/em><\/p>\n

Walk through a Costco and you will see strategically placed employees. The bakery, meat counter, and other services related items will have an employee to guide customers through the purchasing process. However, walk around the clothing and you will have trouble finding an employee. Costco does not leverage salespeople in these spots. Instead, you will find these employees at the checkout lanes, efficiently scanning carts full of goods through the checkout at lightning speeds.\u00a0 Efficiency is key in the labor model; every additional person adds costs that the consumer must ultimately pay for, which is counter to their business model.<\/p>\n

SKUs<\/em><\/p>\n

On average, a warehouse offers 3700 SKUs to customers. [6] <\/sup><\/em>With fewer SKUs, Costco is able to focus its efforts on only selling the items most demanded by its customers<\/p>\n

Scalable Operations<\/em><\/p>\n

With over 600 warehouses [1]<\/sup><\/em>, Costco uses its size and experience to continue to grow its footprint. Several new warehouses recently opened in\u00a0fiscal year 2016 (below list) which will leverage current supplier relationships and past experience to grow operations.<\/p>\n

\"Source<\/a>
Source [7]<\/em><\/figcaption><\/figure>Effectively Leveraging the Operational Model and Business Model<\/u><\/strong><\/p>\n

As Costco continues to leverage its operating model to scale its business, the volume of business gives Costco buying power which aligns with Costco\u2019s business model to offer low prices and a great value. [4]<\/sup><\/em> The low cost business model leverages the \u201cno frills\u201d warehouse aspect of the operating model to minimize the costs of a typical grocery store to return the value to its customers through low prices. Likewise, the strategically placed labor and lack of salespeople in every department throughout the store further controls costs to allow warehouse members to benefit in the form of lower prices. In addition, the SKUs at Costco help maintain a competitive advantage; diverse supplier relationships [8]<\/sup><\/em> as well as a private label brand, Kirkland, allows Costco to remain competitive in offering high quality products.<\/p>\n

 <\/p>\n

Performance<\/u><\/strong><\/p>\n

Costco\u2019s integrated business and operating models ultimately drive performance. In 2015, Costco recorded revenue of $113.7 billion. In addition, they recorded $2.6 billion in cash membership fees, leveraging a key aspect of their business model to drive performance. [1]<\/sup><\/em> Net sales and net income continue to benefit from connecting their operations efficiently to their business model. [6]<\/sup><\/em><\/p>\n

\"financials\"<\/a><\/p>\n

Costco is set up for continued high performance. In a digital age where many items are purchased online, Business Insider<\/em> highlights in a recent article how Costco continues to offer items that consumers prefer to purchase in a store, such as produce and gasoline. [9]<\/sup><\/em><\/p>\n

 <\/p>\n

Sources:<\/u><\/strong><\/p>\n

[1] Costco Today<\/em> Presentation, October 8, 2015 http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=83830&p=irol-audioarchives<\/a><\/p>\n

[2] http:\/\/www.costco.com\/join-costco.html<\/a><\/p>\n

[3] Historical Highlights, http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=83830&p=irol-homeprofile<\/a><\/p>\n

[4] http:\/\/www.costco.com\/membership-information.html<\/a><\/p>\n

[5] http:\/\/www.costco.com\/member-privileges-conditions.html<\/a><\/p>\n

[6] 2014 Costco Annual Report http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=83830&p=irol-reportsannual<\/a><\/p>\n

[7] Recent Openings, http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=83830&p=irol-irhome<\/a><\/p>\n

[8] http:\/\/www.costco.com\/supplier-diversity.html<\/a><\/p>\n

[9] http:\/\/www.businessinsider.com\/costco-is-amazon-proof-2015-12<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Warehouse giant Costco is effectively leveraging its operating model to sustain a business advantage and drive growth.<\/p>\n","protected":false},"author":647,"featured_media":1736,"comment_status":"open","ping_status":"closed","template":"","categories":[348,4,350,110,349,347,7],"class_list":["post-1735","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-costco","category-effective","category-great-value","category-low-cost-uncategorized","category-memberships","category-warehouse","category-winner"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nCostco Wholesale: A Warehouse Powerhouse - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/costco-wholesale-a-warehouse-powerhouse\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Costco Wholesale: A Warehouse Powerhouse - 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