Good Example Of Costco Wholesale Analysis Report

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While analyzing a company like Costco, it is impressive how Costco has managed to instill its brand as an everyday household name in America. Costco has managed through unorthodox methodologies to create a strong marketing awareness in their stores as well as online with the intention of boosting sales. Surprisingly Costco does not spend on marketing its products both offline or online but is built a reputation of reliability and quality through word of mouth. Their bare minimum approaches to creating isles in the stores which help focus customers have proved to be successful with achieving over $52 Billion in sales in 2006.
The article eludes to how Costco maintains its price dominance by working closely with its suppliers who benefit from their large volumes and Costco doesn’t concentrate on everything rather a few items which it specific items, they feel they would hurt their margin if they concentrate on everything. Research presented states that the average household income of an average Costco customer is over $100,000. The article concludes to its finding that bare bone clean business in this case triumphs over the smoke and mirrors approach to some of today’s advertisers. (2006)
2. Read and summarize (one or two paragraphs) an article about Costco’s industry – i.e. either warehouse type stores or discount type super stores (such as Wal-Mart, etc.)While researching the different players in the Costco space it is impossible to ignore the massive presence of Wal-Mart, however in the article cited the author eludes to the major differences in approach to selling and growth. The article touches on a number of points but focuses on a major barrier of entry that Costco charges anywhere from $55 to $110 per year as a membership charge and that Costco sells items in bulk and focuses on quality and luxury items, the higher outset for bulk purchases puts most shoppers outside the purchasing bracket. Apart from the money angle customers who shop there must have the extra space at home to store the items. Walmart focuses on everyday items on low volumes at the cheapest possible prices, highly accessible to everyone and very few barriers of entry. ( Heller, 2014)
3. Calculate the three ratios we have just studied – Gross Profit ratio, Inventory Turn Over and Average Days in inventory - for two years for Costco and two years for Wal-Mart.
4. Draw a conclusion about what the two ratios indicate about Costco
In terms of the profit margin of Costco, Net sales have not seen a huge increase between 2013 and 2014 and hence the margin has only seen a .05% increase. This is purely because Costco operates on low margins but high volume. The higher the sales the higher their gross margin % will increase. Similarly in the inventory turnover ratio you will not notice a significant change. The average inventory was higher in 2014 due to higher net sales. This is directly related to the increase seen in the number of days it takes to sell inventory seeing a small increase.

References

“Costco sticks to business basics.” Advertising Age 28 Aug 2006:14. Business source. Web 25 Feb 2015
Heller, Laura. “Walmart and Costco are not the same”. http://www.forbes.com/sites/lauraheller/2014/06/29/walmart-and-costco-are-not-the-same/ .(2014)). Web
Costco wholesale corporation. Costco wholesale corporation 2014 Annual report. 25 Feb 2015. Web. 28 Aug 2014.
Costco wholesale corporation. Costco wholesale corporation 2013 Annual report. 25 Feb 2015. Web. 28 Aug 2013.
Walmart Stores-Inc. Walmart Stores-Inc 2014 Annual report. 25 Feb 2015. Web. 28 Aug 2014.
Walmart Stores-Inc. Walmart Stores-Inc 2013 Annual report. 25 Feb 2015. Web. 28 Aug 2013.