Costco Wholesale Corporation is the largest membership warehouse club chain based in the United States of America and it is also the sixth and seventh largest retailer in United States of America and the world respectively. The main competitors of the warehouse chain in USA are Sam’s Club and the BJ’s Wholesale Club, but the sales volumes of Costco are bigger than these two. The main idea of the company is to sell products at a lower price than the market and the target customers are large families and common businessmen who will buy the products in a lower rate from the warehouse chain and sell it later with a percentage profit. Another very important thing of the company is that it does not stock multiple brands of a single product, where the product is always the same; the only difference lies in the branding. This is a fantastic sales strategy, which ultimately results in high sales volumes from a single vendor and it results in lower marketing costs.
In the year 1997, the company changed its name to Costco Wholesale and the name change affected all the chain. It always had tremendous growth potential and it was the first company that grew from zero to $3 billion in less than six years. In the report published in the fiscal year that ended on August 31, 2009, the total sales of the company are 71.42 billion and the total profit was $ 1.09 billion. It is ranked 25th on the 2010 list of all the Fortune 500 companies. As per the American Customer Satisfaction Index or ACSI, it is number one specialty retail store, which has secured a score of 83 in the fourth quarter of the year 2008. They also have started their e-commerce business successfully. Costco.com had reached over $1 billion in 2007 and as per their annual report in 2006; they believe that at the end of 2012-13 financial year the business will reach $5 billion. In the year 2002, the company had 294 stores all over the United States, while now it has more than 500 stores, which is nearly a 50% increase. The company has spread its business in countries like Canada, Australia, the United Kingdom and Mexico.
Costco is a recognized brand and in United States it has got a target customer group. As earlier mentioned, large chunks of the customers are businessmen from different parts of the country. Most start up businesses use Costco for buying things like office furniture, different supplies and all the necessary products that are needed to run a business. Some established businesses still rely on Costco to maintain their performance as the company offers a variety of goods and services at their disposal. There are also individual customers who are connected with Costco, who seeks quality goods and services in discounted prices. Actually, in the area of a Costco warehouse any one can use the warehouse for the benefit. Most of the membership families are from the upper and middle class segment. The company does have a total of 48 million customers who do have a household income of more than $75000.
Maintaining high sales volume in every warehouse
In the American market, Costco is one of the largest retailers. The management always tries to maintain high sales volume in every warehouse and as per the reports the company has succeeded to maintain that. Some of the warehouses have reached an average of $300 million in sales in a year, and the average sales of every warehouse are around $127 million. In many cases, some of the warehouses have doubled and even tripled the average sales volume, as per the annual report of the company.
Current Low Cost Operator in Retail Market
Costco is the low cost operator in the United States retail market, and it does follow a number of ways that do help it to stay in that way. For example, it deals with least number of frills in their warehouses. Most of the items are kept in the original packages, so it reduces the packaging costs for the company as well as the total overhead costs. As per the position in the market, the company does have a lot of buying power and it goes to allow the company buy more products for less and sell them to the customers in lower prices. This works in two ways. One, the company saves its money, and most importantly, the members also save their money. Costco regularly opens new warehouses. This gives the members enough option to market and the company gets the opportunity to showcase products from different vendors. Another very important thing is that the management is increasing the number of club memberships. And it is nothing but the increase in sales for the company. The larger membership goes to allow the company to buy items in much bigger quantity that will ultimately affect the savings of the customers.
The popularity of warehouse clubs and super centers has grown up in the last few decades and it is expected that it will continue to grow. The dominance of these two factors will surely have a huge impact on the retail market. Costco is one of the largest chains of stores and it exists not only in United States but also in countries like United Kingdom, Korea, Japan, Mexico and Taiwan. The wide distribution of the Costco stores has allowed the management to leverage the brand equity and ultimately resulted in the increases of sales. Another very important aspect of the company is that it can manage the sales effectively along with the overall workings of the stores. For example, from 2001 to 2005, the company has an inventory turnover rate of 11.5, while its closest competitor Wal-Mart has reached the rate of 7.
With the turn of the century, a lot of interest has been noticed in internet sales and more and more people are using it as a form of purchasing. Costco has used the opportunity in an effective way. The interactive online webpage allows the users easy access to different types of product information. This has been a huge marketing initiative from the part of the company. The company has remodeled its electronic and home improvement departments. These things really help the customers. The two processes are effective in determining a commercial success for Costco in near future, as the need of electronic equipments and home remodeling will never go out of market. Currently there is a decline in the real estate market in USA, so it might affect the business of Costco for a certain time period. The major products of Costco are appliances, books, DVD, VHS, electronic equipments, hardware, things for outdoor living, health products, foods, wine etc. along with all these, the company also sells auto insurance, home insurance, different types of financing and refinancing, health insurances, mortgage services etc. One of the most exciting aspects of Costco is its travel deals, and it is one of the most sold products.
The basic operation of Costco is in Issaquah, Washington. All over the world, there are more than 500 stores, and as per the reports of 2006, there are 504 Costco warehouses all over the world. In United States of America there are a total of 371 warehouses, and it has minimum one warehouse in every major city in USA. Other than that there are 70 Costco warehouses in Canada and 30 in Mexico. In UK there are 10, while there are 5 warehouses each in Japan and South Korea, and 4 in Taiwan.
Bj’s Club and Sam’s Club are two important brand names, but they do not have that much stores all over USA and other parts of the world. And these warehouses also do not store as much product as Costco. The closest competitor of Costco is Wal-Mart in United States and rest of the world.
Costco only serves to the members and the guests, and the only exceptions are in the purchase of liquor and gasoline as per the Federal Laws in some of the states of United States. Along with these two, the prescription medicines can be sold to any one from a Costco store. A Costco membership has to be purchased in advance for a period of one year, but if one decides to buy products from the Costco website, he or she may not be a member but in that case the customer has to shell out an additional 5% as surcharge. All the Costco locations in America and Canada accept American Express debit cards, along with the Costco credit cards and cash cards and recently food coupons. Costco is offering a $25 discounted membership, named as collegiate membership. It is equivalent to the Gold Class facilities and it is only available for College students.
One of the added features of the executive membership is that it allows the members to accumulate points every time they go to shop at Costco. It will give the members an opportunity to gift a Gold Star membership to a person who never had any type of memberships at Costco. Here an executive member will need to accumulate 1000 points so that he or she can gift a Gold Star membership to someone. The 1000 points are same as $1000 spending in Costco warehouses. If the member crosses 2000 points, all the points will be put to hold until the member gifts out two memberships. Actually 2000 points is the maximum limit until the gift certificates are distributed. In the last financial year, Costco has paid $6,400,000 in 2% rewards. It goes to show that the executive members of the company have spent around $3.2 billion. So the new points program will surely affect the sales of the company.
In November 2011, the membership fees are $55 a year, and it is the Gold Star membership, which can be issued fro an individual as well as business membership. The old memberships are renewed for $50 and one can upgrade it to an executive membership for $55 per a year. The executive memberships can receive a 2% rewards check or a cash prize of $750 from the Costco stores. In Canada, the membership is 55 Canadian dollars for Gold Star membership and 110 per year for any business membership. But in UK, the membership is restricted for some specific groups, and there are different types of memberships like Trade Memberships and membership belonging to people working in specific sectors. Costco is going to offer the different memberships to the entire private and public sector offices as well as different colleges. It will increase the visibility of the brand to the people of United States.
Marketing for Collegiate Membership
The younger generations of customers who are aged between 18 to 30 years with less disposable income are becoming a very large segment of the Costco market as they have envisioned some years ago. They are aiming to increase the particular segment of customers around 5% by the end of 2013. That is why Costco is offering a $25 discounted membership, named as collegiate membership. It is equivalent to the Gold Class facilities and it is only available for College students. The collegiate membership is one of the most important aspects for Costco. It has targeted to increase the customer base of the younger generation and it will be a great help. The company is going to market effectively in all the domestic colleges of USA. It will surely get some very potential customers. And the collegiate membership does have all the benefits of a Gold Card and it will be a profitable thing as well. Here, if a student gets the basic benefits of the membership, he or she will persuade other friends to have that or they will generally look for getting that. It will be a general promotion. The college generation is prone to internet and it can be surely beneficial as Costco has a strong internet presence. If the student has the card, he or she will get the products for lesser money than the non-card holders.