Industry & Company Analysis

1. Industry & Company Analysis Variety, Discount Store – Costco Aileen Huang

2. Variety, Discount Stores • Merchandise store • General lines of new merchandise such as apparel, auto parts, dry goods, hardware, groceries in limited amounts with none of the lines predominating • Warehouse clubs • a general line of groceries in combination with general lines of new merchandise • Supercenter • Discount department stores

3. Five forces analysis • Bargaining power of suppliers: weak • Large volume for each store, shelf space • Bargaining power of customers: strong • Various stores, price-sensitive • Threat of new entrants: low • High requirement of capital and technology • Fierce competition within this industry • Threat of substitutes: low • Convenient store, department store etc • Level of rivalry: high

4. Competitive scope Highly competitive, led by Wal-Mart • Wal-Mart • 3,800 stores throughout U.S. • Owned both Merchandise stores and warehouse clubs • Target • Second, 1,600 stores • K Mart • 1,400 stores

5. Component of Success • Retail chain • Supply-chain, inventory management system, cost control • Wal-Mart: point-of-sale system • Satellite communications network, every purchased is scanned and stored in a database, and replenish this item in less than 36 hours • Pricing • Economy is in sluggish  more sensitive to price • A lot of stores to choose from • Online shopping • Trend • Amazon.com • Delivery time is crucial

6. Uniqueness of different companies • Dollar General • Low prices in a convenient location • In-and-out shopping format • Target • Family oriented, speeding check-out • Wal-mart • Variety selection, lower price, roll-back, unique payment agreement • Costco

7. Costco • Established in 1983 • 71,200 members • 451 Warehouses/stores in U.S. • Sales: $103m; Net income: $2m • Competitors: Sam’s Club, BJ Wholesale • Started same time, only three big wholesale clubs still in operation • Market share 67% Sam’s Club; 17% Costco

8. Suppliers Costco has a strong bargaining power dealing with suppliers • Mainly from manufacturers • Large volume, lower price • Cross-docking consolidation point, 22 • Less labor, warehouses, better inventory management • High turnover of inventory • Sell inventory and pay vendors • Inventory funded through payment terms

9. Customers • Target customer • College educated households, $70,000-$80,000, two cars • Small business, top 2 restaurant and vending • An increase number of memberships • Business & individual, $55 per year • Renewal rate 97% • Loyalty and good reputation

10. Merchandise • National brand & private brand • Max. markup 14%, 15% respectively • Higher quality with lower price • Kirkland Signature, organic food • Largest wine retailer with 200 varieties • Convince top-notch suppliers their customers’ ability • Expand selection towards high-end products • 3,600 different items • 125,000 at Wal-Mart • Philosophy: “customers will run away if provided too many choices”

11. Service • 90-day return policy • Customer satisfaction • Third party warranty coverage is sold on certain electronic item • Hours of operation 10:00a-8:30p • Determined by customer cluster • Lower labor cost to the volume of sales • Value-added services • Gasoline operation, food court, optical, pharmacy

12. Warehouse Selected brands and simple decoration • 143,000 square feet on average • Bare concrete slabs, huge skylights • Durable, save electricity • Industrial pallets for display • Same as the one during shipping, less handling and stocking • No signs inside for directions • Fresh food in the back of the store • Customer spend more time with discounted merchandise • Good control of entrance and exits, limited loss

13. Employee • $21 an hour, compared to $13 at Wal-Mart • 103,000 full-time; 81,000 part-time • Non-union • “Started from West Coast”- From Wal-Mart • 88% of employees have company-sponsored health insurance • Closed at Thanksgiving day

14. Q&A