Inside_to_Costco's_Success

An inside to Costco’s Success Introduction No company can achieve the goals to be successful without a solid plan. This plan involves strategies laid out and reviewed. Scenarios are a tool to ensure success in the event of changing markets. Markets change without warning. Companies analyze consumer buying trends and adjust the organizational and operational tasks. Economic upturns and recession play a crucial part in these decisions. Forecasting into the future requires a management team derived by human resources management who fill the gaps in an effort to meet the company’s goals. Competition both nationally and internationally is an adversary that Costco analyzes carefully. The brick and mortar and the e-commerce complement together create the revenues that stakeholders and stockholder watch. The business plan that a Costco implement meets opportunities, and diminishes threats. The use of good ethics and sound judgment provides Costco with a positive image both home and abroad. Today’s consumers and investors demand trust, which is vital in building customer loyalty and future expansion efforts. This paper will allow the reader the chance to review Costco’s practices and plans. The investor will see how careful and sound business practices and decisions allow Costco to remain successful and continue to grow. Economic Trends Operational adaptation is a key that allows a store to survive. Costco has proven this. With more than 550 warehouse locations they are the largest at this time. The cardholders number 54 million. There is still room to grow. In looking at product lines the competition is fierce. Prices of Televisions and DVD’s are falling. The online presence is allowing consumers to shop at home or even on the phone. According to Clifford at the New York Times “retailers are trying to lure customers back into the store, and make it more appealing” (NY Times, p1. 2012). Costco will remain a no frills type of business. Customer service is number one, and always ruled the marketplace. But others are adding massage chairs and fish aquariums to the sales floors, Costco just keeps on pace with lower prices and exceptional customer service. Some retailers are training their employees two to four weeks before they hit the sales floor. This effort is aimed at customer service. Costco still holds the edge on prices. They have not multi-channeled their product lines. While some like Walmart offer a variety of name brands, Costco keeps these to a minimum. They even offer delivery service to a local area, and cater to small business. Online presence is a marketing challenge. Costco’s online revenues are one billion annually. This type of revenue proves how the consumer is turning more toward online for convenience. Increasing the methods of payment, and cloud computing will give Costco the advantage here. Cloud computing is the buzz word in business today. Amazon has problems with downtime on their servers. Costco believes they can eliminate this problem by using cloud servers. Costco still looks to expand into markets not saturated with heavy competition like Sam’s club and others. The key ingredient in Costco’s success will be low prices. By keeping a limited line of products and selections the inventory in each store will not be a burden to the company. Costco will hold onto the “treasure hunt” experience that attracts consumers. The constant shifting once a week of products puts excitement into the customers mind. Everyone loves value when shopping, and Costco will hide little treasures within product lines. These items are usually heavily reduced in price but not value. While other competitors are racing around to have the best label on clothing, Costco will stick to the Kirtland label. Kirtland keeps a 20% lower price advantage over others (Marketplace, p1. 2012). Costco plans on increasing their memberships. This strategy will consist of luring employed people from large industries. A further marketing campaign aimed at the small business owner will include free shipping to the place of business. This idea is great, but it does have shortcomings. A strong product analysis is underway to see which “everyday” items are moving. Price point is important at this level. Costco will remain 10 to 20% cheaper on these products vs. the competitors. Direct mailing will inform the warehouse shopper about new deals and savings. Costco is trying to lure the warehouse buyer back into the store at a rate of two to three times a month (Marketplace, 2012). Costco is also paying off the debts to vendors early. This allows discounts and vendors are financing the purchases. This practice allows Costco to retain the working capital without depreciating reserves. Strategies of Adapting One strategy that Costco is pondering is the acquisition of BJ’s wholesale club houses. This competitor only makes up nine percent of the wholesale club business (CostcoCase Study). A strong reason for acquiring this company would be added locations. This would enhance the demographic presence. BJ’s stores are newer, so renovations would not be so costly. Costco would inherit a trained staff, thus reducing some internal restructuring costs. Below is a SWOT analysis that illustrates changes Costco could implement. Strengths are a driving force in any business. Costco has capitalized on this by offering the Kirtland brand that as mentioned before offers a 20% savings over name brands. Costco does carry name brands but restricts the amount of labels they carry. Customer service is the key ingredient for Costco’s success. The staff is easy to find and helpful. The price point that Costco delivers is coupled with great customer service, and treasure hunting. It is not surprising Costco has risen up the retail chain. Costco’s weaknesses need a new marketing venture in procuring new customers from their limited household penetration point. The physical locations are aging and real estate issues exist. Costco could build new stores, but this would involve a major capital investment. The “no frills” warehouse stores offer low overhead and the ability to stack more inventories. Costco has paid off the Mexico venture debt, and this did reduce their cash flow. However, in doing so, they proved to investors their solvency. The long- term debt is low. Costco’s sales continue to increase, and they have risen to the fourth largest retailer in North America. Opportunities exist and new markets are not without risks. In looking at expansion on an international level, China and India offer the greatest prospect at this time. There is room also in Europe. At this time Costco has locations in Japan, Taiwan, and Korea. If these Asian markets are strong and self- supporting a shift to the Chinese market is worth analyzing. Product lines are always changing. Consumers today are looking into healthier alternatives. The west coast is known for healthier choices. Costco could implement more Gluten-free foods. A test market in the west coast will show if an expansion into this product market is advisable. The expansion of delivery service will need a detailed analysis. Right now, Costco delivers to businesses. Home deliveries are offered by a couple of competitors. This usually involves a minimum order with a small charge for delivering the products. Points to consider are liability issues, cost of vehicles, and the operational expenses. This service would be a niche in the market if executed successfully. Human Resources Management The tip of the sword for Costco’s thrust into the competition comes from the employees and management staff they have. These individuals come from different labor pools, and the job of filtering and gathering the best is the job of Human Resources. The HR department is vital in training both management and floor staff. Costco’s believes by properly training the front end staff, they can eliminate the need for self-checkouts instead of the human touch (Goolsby, 2012). Face- to-face interpersonal communications is the key to a great customer experience. This is the last stop for the customer, and by keeping the transaction quick and pleasant Costco can remain ahead of the competition. Human Resources understand this and implements training videos along with a seasoned veteran alongside a new associate. Human resource management team was set up against Sams Club to illustrate the effectiveness of their job, and why employee retention and costs are better. The following graph below illustrates the analysis provided by Harvard Business Review. Source: Casico, W. The high cost of low wages. Harvard Business Review. As the reader can see, the turnover rate at Costco is low. This proves the effectiveness of the human resource Department. Costco’s employees are happy with the job. The wages are higher, and the health care is better. Many potential employees look for these types of benefits. These type of benefits allow high retention rates, and enables Costco to fulfill the company’s goals. Investment After researching the last 20 years of Costco’s success, the student would have no problem investing into a company still on the rise. Even though cash flow is tight, the past sales and projected eases this concern. Sales have steadily risen while others diminished. The opportunities will help Costco grow. The basic philosophy to operate the business is the key that favors this decision. Conclusion The reason a business is successful is many. There is a core reason why Costco is still on the rise. Costco is willing to reinvestments into their infrastructure, and more important their people. They have met the recent trends on their own set of rules. Costco keeps the business operations simple. Inventories are kept low. They believe in price point, making the experience fun, and great customer service. The training each associate receives is extensive. The worst scenario that can happen on the floor is an associate who is not sure what to do. This does not happen with Costco because a veteran is alongside. They care about each other and commit to the stores success. They take pride in their work. Expansion into global markets is successful with new markets analyzed. Costco ranks number four in the retail chain. The next 10 years will show how investments into the physical store locations payoff. Reference Clifford, S. (2012). The New York Times. Electronics Retailers Scramble to Adapt to Changing Market. Retrieved August 18, 2012 from http://www.nytimes.com/2012/06/19/business/electronics-stores-struggle- to-adapt-to-changing-market.html'pagewanted=all N.A. (2012). The Market Place of Life. Costco Case Study. Retreived August 17, from http://themarketplaceoflife.blogspot.com/2011/01/costco-case- study.html Goolsby, J. (2012). Costco wholesale training film-Front end Productivity productivity-video- automated-checkstand-John-Goolsby. Retrived August 17 from http://godfatherfilms.com/videos/costco-wholesale-training-film-front-end- N.A. (2011). Harvard Business Review. Retrived August 17, 2012 from http://www.shrm.org/about/foundation/products/Documents/HR%20Strategy %20PG-%20Final%20Online.pdf