Costco Keeps Formula as It Expands

Introduction

The retail business sector showed its flexibility regardless of hard economic times, enhanced rivalry and repositioning goes ahead of its key competitors last year. Monetary outcome was a blend of desirable and undesirable, but the warehouse industry continues to grow. The article reviews the formula used by Costco in order to remain the leader in the retail sector.

From the article it is vivid that Costco’s sales increased by 2%, but the financial analysis section needs farther discussion because the information provided is uncertain, and the model applied by Costco is perplexing (Debbie 2). Basically, this paper presents summary of the article, additional research on Costco’s operations, relevance, contribution to knowledge and lastly presents issues that the author could have discussed so as to farther reinforce his analysis.

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Summary

After a decade of growing into emerging markets originally dominated by industry competitors, Costco appears to be operating keenly in spite of the ongoing headship as the retail business generating the largest revenue. Of the 27 warehouse outlets organized in 2011, approximately 45% were based on emerging markets, different from the average of 65% during 2010 and 80% during 2009. The economic slowdown and instituted rivalry have resulted to decreasing revenue for Costco in emerging markets (“Costco Keeps” 1).

The author asserts that Costco is still broadening its share and drawing nearer to Sam stores in number of outlets, with 423 outlets globally currently, of which 315 are based in the U.S. Also, revenue from sales rose by 8% to $414,200 million. Costco’s winning method is proving hard for Sam and BJ stores in regions where the competitors continuously overlap (Debbie 2).

With total warehouse revenue the largest within the retail sector, at $114,000 thousand in the U.S compared to $57,000 thousand at Sam stores and $40,000 thousand for BJ stores, Costco struggles towards fine-tuning a good formula established by providing goods at low price with a prominence on prime products. In foodstuff, this is evident as this offering is provided as pure wine (“Costco Keeps” 2).

Background

Costco’s equivalent-unit sales volume increased, shifting to 6 percent from 4 percent. For both BJ’s and Sam’s stores, sales volume was at 2% and discouraging, the two wholesale stores experienced a decrease from 2010 outcomes. The disappointing situation encouraged BJ and Sam stores to adopt emerging formulas to increase revenue from sales and minimize operational costs, a setback evident also in Costco due to its high expenses.

Consequently, growth efforts declined a bit last year, with increased attention to expanding current outlets and merchandise. On average each of the two stores added 19 fresh outlets in the U.S in 2010, while Costco added more than 27 stores. Sam stores started 21 units whereas BJ stores introduced 17, including merchandise presence in Atlanta (Debbie 3).

In 2010, the three stores had approximately 964 local stores in operation producing $70,000 million in sales. At approximately 1,050 units, the problem of concentration emerged, yet all retailers were able to successfully increase revenue and membership, regardless of many players in the retail industry.

With shifts toward warehouse outlets increasing to the disadvantage of conventional supermarket stores, it seems warehouses will keep on growing food market and membership share. Costco management has opened stores in regions with about 120,000 people, a lesser population for the approach than initially held (Debbie 4).

Discussion

Costco has changed from “generating low revenues” to “making large cash” in cities. Its business and marketing strategy has proved hard for competitors especially in emerging markets. As Costco penetrates market that has been dominated by Sam and BJ stores, it is going to reduce their business share because of Costco’s excellent products (“Costco Keeps” 1).

Fresh foodstuffs remain one of the highest-functioning sectors for Costco group, with revenues amounting to 9% in 2010 and 9.5% in 2011, particularly from meat and meat products. Foodstuff sundries led to the ultimate margin of 6.2%, whereas soft drinks have declined recently. Approximately 60% of Costco revenue is from supermarket-based goods and Costco benefits from cost-sensitive client’s retail stores as a substitute formula (Debbie 2).

Personally the author is well versed with the winning formula applied by Costco. From the article, private labeling technique has been successfully applied in foodstuff to increase revenues at Costco and has also earned client trust especially for the Kirkland products. The concepts presented in the article regarding selection of an appealing formula in the retail industry are great addition to literature.

The marketing model utilized by Costco locks out other rivalries from the limited market and when applied nicely can open up great opportunities for retail businesses still struggling to break through. Ideally, the article is relevant since it has effectively explained the previous, current and expected future position of Costco in the retail sector, with high emphasis on market segmentation (“Costco Keeps” 2).

In conclusion, even with increased focus on merchandise needs, foodstuffs continue as major portion of the mix. Foodstuff and sundry represent about 60% of revenue.

Works Cited

“Costco Keeps Formula as It Expands.” Retail Features. Print, 30 January 2012: 1-2.

Debbie, Howell. “Clubs Expand Despite each other: Major players push Differentiation – Special Report – warehouse clubs.” DSN Retailing Today. Web, 3 Feb. 2012: 1-5.