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Respond to the below post following the below guidelines:
Be sure to post an initial, substantive response by Thursday at 11:59 p.m. MT and respond to 2 or more peers with substantive responses by Sunday at 11:59 p.m. MT. A substantive initial post answers the question presented completely and/or asks a thoughtful question pertaining to the topic. Substantive peer responses ask a thoughtful question pertaining to the topic and/or answers a question (in detail) posted by another student or the instructor.
Costco Wholesale is a global retail company established in eleven international markets, whose business model is based on membership, from which the majority of revenue is obtained of the over 100 million members (Greene, 2021). Costco provides its members amazing deals and a treasure hunt shopping experience on bulk, palleted product, limiting product variety and negotiating with each unique supplier to have less than 20% profit margin. Costco’s key resources are the physical capital of warehouses, whether business centers or standard consumer warehouses, human capital of almost 300,000 dedicated employees across the world, and the suppliers of each warehouse’s product, including big names, local, smaller business’ product, and Costco’s own Kirkland Signature brand.
Costco’s focus on internal growth and development is one other facet of the organization’s strengths regarding human capital, maintaining extremely low turnover rates due to enticing benefit packages, an average wage of $20/hour with raises based on hourly scales (800 hours, 800 hours, 1200 hours, 800 hours, etc.), and promoting internally through in-depth, cross-warehouse training (Garcia and Kleiner, 2016). From my own personal experience working at a warehouse in San Diego, CA and Austin, TX, I heard many a story of employees desiring to leave their warehouse career behind, but Costco retained those individuals and many more purely on pay and benefits. This level of employee retention is, in turn, beneficial to the members, with happier, more attentive, and more knowledgeable employees to assist them with their needs.
Costco’s areas of potential weakness might actually be the methods by which they can provide members low-cost product. Membership itself can be an area of weakness, particularly as membership rates increase every four to five years by approximately 10% with every hike, with a basic membership currently standing at $60 and an executive membership at $120 (Gilbert, 2021). Low profit margins on product could also be a sticking point, as Franz (2020) points out that Costco has the lowest gross margin of 11% compared to some its biggest competitors Kroger (22%), Walmart (24%), and Target (29%). Costco also runs off of word of mouth with absolutely no funds allocated to advertising, relying on brand equity and word of mouth to continue bringing in new members. Garrett (2021) quotes Costco founder Jim Sinegal stating, “’In our business advertising is cost. If you advertise, you have to raise the price of the merchandise—it is that simple… Word of mouth is the most effective type of advertising”” (para.21).
Franz, Matt. (2020). Costco: A Wonderful Business But Priced For Perfection. Eagle Point Capital, Eagle Point Capital, https://www.eaglepointcap.com/blog/costco-wonderful-business-expense-stock#:~:text=Costco’s%20low%20gross%20margin%20demonstrates,half%20of%20its%20nearest%20competitor.&text=Low%20gross%20margins%20are%20a,to%20earn%20competitive%20operating%20margins.
GARCIA, N., & KLEINER, B. H. (2016). There’s profit in wellness and social responsibility. Industrial Management, 58(6), 24–27.
Garrett, John. (2021). Learning from Costco’s Jim Sinegal. Investment Masters Class, Investment Masters Class, http://mastersinvest.com/newblog/2019/7/5/learning-from-costcos-jim-sinegal.
Gilbert, Ben. (2021). Costco Membership Fees Are Expected to Increase Starting in 2021, the First Time in Four Years. Business Insider, Business Insider, https://www.businessinsider.com/costco-membership-fees-increase-starting-in-2021-2021-3.
Greene, J. M. (2021). Costco. Salem Press Encyclopedia.
Kissinger, Daniel. (2017). Costco Wholesale SWOT Analysis. Panmore Institute, http://panmore.com/costco-wholesale-swot-analysis.